Analysts Warn CBN to Avoid Further MPR Hikes Amid Rising Inflation and Economic Hardship

For the umpteenth time, analysts on Monday, urged the Central Bank of Nigeria (CBN) to be wary of further hikes in the Monetary Policy Rate (MPR), the benchmark interest rate that determines the cost of borrowing in the economy.

The call came as MPC was expected to announce today the outcome of its regular meetings to gauge the health of the economy.

Analysts said having previously raised MPR by 750 basis points since February 2024,the cost of borrowing had increased to about 26.25 per cent.

Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) also warned about the potential consequences of another MPR hike by the CBN.

In separate interviews with THISDAY, analysts said going by the body language if the CBN, the committee was likely to further pursue a contractionary monetary policy stance amid heightened inflationary pressures.

They said given the current state of the economy, coupled with widespread hardship, the MPC should consider stimulating growth rather than continuing to tighten in order to rein in inflation.

They noted that previous increases in MPR had not subdued rising prices of goods and commodities.

In a statement, National President of NACCIMA, Mr. Dele Oye, pointed out that while an increase in interest rate might help control inflation, it often resulted in higher costs and increased uncertainty, which could have a range of negative impacts on businesses and growth prospects.

Oye said further rate hike would increase borrowing costs, lead to reduced investment, decreased consumer spending, impact on stock prices, cash flow challenges, inflation control, and long-term planning, among others.

He said while such move could strengthen the naira, and reduce the cost of imports, it could also make exports less competitive, potentially harming businesses that rely on international markets.

The NACCIMA president stated, “In summary, while an increase in the benchmark interest rate can help control inflation, it often introduces higher costs and increased uncertainty for businesses, which can have a range of negative impacts on their operations and growth prospects.”

Director, Institute of Capital Market Studies, Nasarawa State University, Keffi(NSUK), Professor Uche Uwaleke, said much as tightening was justified to neutralisethe adverse effect of increased money supply, especially, from Ways and Means, the CBN should recognise that the challenge currently facing the Nigerian economy was “not just inflation but stagflation, and to this end, should equally have regard to growth concerns in future meetings of the MPC”.

Uwaleke, who is also President, Capital Market Academics of Nigeria, said, “In line with the tightening stance of the CBN, the MPC is likely to increase MPR by at least between 50 to100 basis points this July.

“Headline inflation rose to 34.19 per cent year-on-year in June, despite the aggressive hike in the MPR between February and May. 

“To make matters worse, month-on-month inflation turned northwards in June. So, the MPC will still be concerned about the need to narrow the negative interest rate as well as curtail the pressure in the forex market.”

He added, “Only recently, the CBN was compelled to resume interventions in the forex market in defence of the international value of the domestic currency.

“Nevertheless, if I were a member of the MPC, I would vote for a hold position, as the aggressive policy rate hike is taking a toll on output.

“Production is stifled because of very high cost of funds. Moreover, the seeming over reliance on the MPR as a tool to tame inflation does not appear to be making any meaningful impact due to the significant non-monetary factors driving inflation in Nigeria, such as high cost of energy, transport, as well as insecurity in the food-belt regions of the country.

“The high cost of credit is also a factor contributing to cost-push inflation. This is due in part to a very high CRR of 45 per cent, representing sterilised bank deposits with the CBN.

“This liquidity squeeze is now driving undue pressure by banks on the CBN’s Standing Lending Facility.”

Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, said the existing high MPR was already stifling the economy.

Ekechukwu stated, “Any further tightening will worsen the economic hardship faced by Nigerians. The higher the MPR, the more the inflation rate in Nigeria’s situation. 

“This is so because there are other factors influencing the inflation rate other than money in circulation, which tightening tries to address.”

Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, said, “CBN MPC will likely hike interest rate based on the body language of the CBN governor who has in several fora stated that the way to curb inflation is continuous hike in interest rates. 

“However, I think the committee should take stock of its decisions in the past four MPC meetings and see the continuous increase in interest rate has not brought down inflationary trend but has further pushed inflation to record levels.”

He also said, “I have always advocated that interest rate hike alone cannot reduce inflation on the long run while others factors affecting inflation, like weak Naira, high energy cost and high cost of production are not tackled headon. 

“The country must increase productivity to stimulate the economy and encourage more investment in key growth drivers of the economy, like agriculture, oil and gas, mining, telecommunications and entertainment, to mention a few.”

James Emejo

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