By Dosu Deborah Oluwatimilehin (SIWES student, Adeseun Ogundoyin Polytechnic Eruwa)
The Central Bank of Nigeria (CBN) has raised its benchmark interest rate, known as the Monetary Policy Rate (MPR), by 400 basis points to 22.75 percent in a bid to tackle rising inflationary pressures.
This move, the first increase in eight months, reflects the CBN’s strategy to curb inflation by making borrowing more expensive and encouraging savings.
In tandem with the interest rate hike, the Monetary Policy Committee (MPC) has widened the asymmetric corridor around the MPR from +100/-300 basis points to +100/-700 basis points.
This adjustment provides the CBN with greater flexibility in monetary policy, enabling it to tighten measures and rein in inflation.
While these actions are expected to help control inflation, they may adversely affect the real sector of the economy.
Higher borrowing costs could hinder businesses’ access to capital, dampening investment and economic growth. Moreover, increased prices of finished products could strain consumers’ purchasing power, posing additional challenges.
In addition to raising the MPR, the CBN has elevated the Cash Reserve Ratio (CRR) to 45 percent while maintaining the Liquidity Ratio at 30 percent.
These measures aim to reduce the money supply in the economy, further tightening monetary policy to address inflation.
Concerns have been raised by experts, including a professor of capital market studies at Nasarawa State University, Keffi, who warns of potential negative impacts on the economy.
Criticizing the magnitude of the interest rate hike, the professor suggests a more measured approach and advocates for assessing the effects before making further adjustments.
The professor emphasizes that while inflation may decrease, the economy could suffer from decreased GDP and increased unemployment.
He cautions against overlooking non-monetary drivers of inflation and advocates for a more gradual policy implementation to mitigate adverse consequences.
In conclusion, the recent actions by the CBN signal a proactive stance against inflation, albeit with potential economic trade-offs.
Balancing the need for inflation control with sustaining economic growth remains a critical challenge for Nigeria’s monetary authorities.
