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Economists Knock CBN, Emefiele Over 18% Interest Rate Hike

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Economists Knock CBN, Emefiele Over 18% Interest Rate Hike
CBN Governor, Godwin Emefiele.

The benchmark interest rate by 50 basis points to 18% from 17.5 per cent announced on Tuesday by the Central Bank of Nigeria (CBN) has been criticised seriously by economists.

Naija News reports that the embattled governor of the apex bank, Godwin Emefiele, announced the rise yesterday while reading the communique of the year’s second Monetary Policy Committee (MPC) meeting.

Emefiele noted that the committee voted to keep the asymmetric corridor at +100 and -500 basis points around the MPR. Addressing pressmen shortly after the two-day MPC, the CBN governor said the slight hike is to prevent the effect of inflation and other economic issues.

He said, “The MPC committee voted to raise the MPR by 50 basis points to 18 per cent, retain asymmetric corridor at +100 and -500 basis points around the MPR. Members resolved by a majority vote to raise the money policy rate NPR by 50 basis points. In summary, ten members voted to raise MPR by 50 basis points, one voted to raise MPI by 25 basis points, and one voted to hold the MPR.

“All members voted to keep all other parameters constant. The MPC voted to raise MPR to 18 per cent, retain a symmetric corridor plus 100 and minus 500 points around the MPR, retain the CRR at 32.5% and retain liquidity ratio at 30 per cent.”

Economists have, however, faulted the development, saying the increase was needless at a time the country is yet to recover from the effects of the naira redesign policy introduced by the apex bank.

In a recent interview with newsmen, a professor of Economics at Olabisi Onabanjo University, Sheriffdeen Tella, said the CBN should have just allowed the MPR to remain as it is and focus on other matters.

“The rake hike is unnecessary. Who is even borrowing from the banks? Can the banks lend anybody money when they don’t have money? The MPR is supposed to signal the banks; if they increase MPR, the central bank says, ‘charge more for loans.’ The loans are not even there. It is when the banks receive money that they can create money to give as loans.

“One expects them to leave the MPR as it is presently and work on how the central bank can make the banks work, getting cash, not when banks are still rationing cash. If they had enough cash, they wouldn’t be rationing money,” Tella told the PUNCH.

On his part, a professor of Capital Market at the Nasarawa State University, Keffi, Uche Uwaleke, supported Tella’s stance, saying, “It’s apparent the MPC is still concerned about rising inflation and the pressure in the forex market against the backdrop of its primary mandate of maintaining price stability.

“However, I had expected MPC to maintain a hold position considering the significant drop in currency in circulation occasioned by the currency redesign policy and the fact inflation rate decelerated month on month between January and February 2023. The adverse impact of the recent cash scarcity on productive activities, as well as the conclusion of election season, should have provided justification for a hold position.”

Supporting the position of his fellow economists, a professor of International Economic Relations at Covenant University, Ota, Jonathan Aremu, said that the CBN would be putting the cart before the horse by deliberating on the MPR without addressing the naira crisis that has exacerbated the inflation problem in the country.

Aremu, who is a former Assistant Head of Research at the CBN, lamented that the economy was suffering from serious contraction due to the cash shortage that has constrained production activities.

He said, “The simple quantity theory of money actually explains the basis for inflation, that if so much money is available and there are fewer goods, the prices will rise, but the money is not available to even produce the goods.”

On his part, the Deputy-President of the Lagos Chamber of Commerce and Industry, Gabriel Idahosa, observed that the MPC had resorted to indiscriminate rate hikes due to a lack of understanding of Nigeria’s peculiar economic challenges.

Idahosa further stated that unless Nigeria significantly increased its non-oil exports to produce the right balance between imports and exports, the “gymnastics” of rate hikes by the CBN would not solve the country’s inflation problem.

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