The Central Bank of Nigeria (CBN) and its Monetary Policy Committee (MPC), led by its governor Yemi Cadaso has raised the interest rate to 26.25 percent in the struggle to combat the deteriorating inflationary trends.
Previously Nigeria’s interest rate stood at 24.75 percent before the baseline lending rate was increased by 150 basis points to 26.25 per cent. The aggressive tightening was to halt the soaring inflation rate at almost 34 percent.
Addressing the news media, Central Bank of Nigeria (CBN) boss, Yemi Cadaso emphasized that it takes time for policy to work and there is no magic wand.
But the initial economic blunders made by Tinubu administration at its inception must not be disregarded as a contributing factor to the economic status quo. Without consultation, research and analysis the naira was floated on behest and directive of International Monetary Fund (IMF), and simultaneously fuel subsidy was completely removed without gradual methodology. The devaluation of naira by more than 60 percent and removal of fuel subsidy pushed the inflation upward, and triggering the soaring prices of food and petrol. Therefore the government was not helping the matter by its disastrous policies.
Cadaso in his own words, “I have said several times and I will say again, there is no magic wand. These are things that need to take their time.
“I am pleased and confident that we are beginning to get some relief and in another couple of months we will see the more positive outcomes from the Central Bank have been doing.
“The committee thus reiterated several challenges confronting the effective moderation of food inflation to include rising costs of transportation of farm produce, infrastructure-related constraints along the line of distribution network, security challenges in some food producing areas, and exchange rate pass-through to domestic prices for imported food items.
“The MPC urged that more be done to address the security of farming communities to guarantee improved food production in these areas.
“Members further observed the recent volatility in the foreign exchange market, attributing this to seasonal demand, a reflection of the interplay between demand and supply in a freely functioning market system.”
Cadaso was looking forward of receiving some relief from remittance inflow from Nigerian Diasporas. He said : “Let me give some context to this. I’m sure over the years; many of you would have read from the World Bank that Nigeria has significant remittances from the diaspora.
“We have identified that this is a critical element of inflows coming into the country. It is estimated to represent about six per cent of our GDP. We felt from the Central Bank’s perspective to have a strategy to engage this sector, the entities that seem to play the biggest role in that sector are the IMTOs and so for us, it was important for us to meet them.”
The recent World Bank report stated, “Remittances to Sub-Saharan Africa are estimated to grow by 1.9 per cent from $53bn in 2022 to $54bn in 2023. Projections indicate that remittances to the region will keep increasing, reaching $55bn by 2024. The slowed growth in remittances observed in 2023 is explained by the slow pace of growth in the high-income economies where many Sub-Saharan African migrants earn their income.
“Remittances to Nigeria, accounting for 38 per cent of remittance flows to the region, grew by about two per cent, while two other major recipients, Ghana and Kenya, posted estimated gains of 5.6 per cent and 3.8 per cent, respectively.”
Raising interest rate may checkmate inflation but it has its downside. “Higher interest rates typically slow down the economy since it costs more for consumers and businesses to borrow money.. .higher interest rates can make it more expensive to borrow and could hamper overall economic growth.” And Nigeria at the moment needs pro-growth policy to come from its economic slowdown.
There is so much monetary policy can do before it wanes without complimentary input from fiscal policy from the executive branch of the government. The burden of taxation on producers and consumers must be lessen because higher taxation discourages consumption due to higher prices. The government most important social contract is the protection of life and property. Poor insecurity destabilize the market and shrinks agricultural growth and production.
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