By Uche Amunike
Experts on finance and the economy have advised the Central Bank of Nigeria (CBN), during the MPC meeting of May 2024, held in Abuja to retain the current lending rate of 24.75%.
Speaking, through separate interviews in Abuja after the meeting, the experts spoke against the backdrop of the MPC meeting scheduled for Monday and Tuesday.
According to Professor Ken Ife, lead consultant on Private Sector Development to the ECOWAS Commission and renowned economist, what looked like the successful and aggressive tightening in the previous two meetings might make the committee further tighten the lending rates.
While advising the committee to retain the prevailing rates, he stated: ‘They might want to increase it. The worst-case scenario is for them to retain. This is because the policy is working to tighten the grip on inflation. It is yielding results.’
He further stated: ‘Even though, relative to last year, inflation is increasing, when you look at month-on-month inflation, all the five inflation indices are decreasing. Headline inflation, which is the composite price index, food basket index, core inflation, urban inflation, and rural inflation. They all went up in the last 12 months, but month on month, between March and April, they all started going down.’
’So, the aggressive tightening is working, but it needs more time for the growth to become significant, and reflect on the next months’, he advised.
He further explained that the MPR is a major challenge for investors because it is less than inflation. His words: ‘Inflation is 33.1 percent while the lending rate is 24.75 percent. This does not encourage investment.’
‘So, the MPR could continue to rise while inflation continues to decline until one gets higher than the other.’
He continued: ‘In the prevailing circumstance, private sector investment could be crowded out because if banks are forced to borrow at a high level, their lending rates will also get higher.’
He therefore maintained that the lending rates, are retained, even though they might be tempted to increase it.
On his part, the past president of the Abuja Chamber of Commerce and Industry (ACCI), Dr Chijioke Ekechukwu, tasked the MPC to stop further tightening of the lending rate. He stated: ‘At the inception of the new MPC, it has been about tightening. Tightening became necessary because of the amount of money in circulation, which needed to be mopped up.’
‘This has resulted in a high MPR, which has equally led to a high-interest rate in the financial sector.’
‘Having reached this far, instead of tightening further, they should hold on to the existing rates to be able to see the impact of the tightening that has been done already.’
‘The more tightening that we have, the more the inflation rate. Today, there is a positive correlation between high APR and high inflation rate’, he clarified.
He maintained that it is not right, but the Nigerian economic situation is peculiar because there are other factors outside the purview of the monetary policy that also bring about a high inflation rate.
Hear him: ‘For example, food inflation has nothing to do with monetary policy. It is a security challenge.’
‘Also, the increase in the pump price of PMS has nothing to do with monetary policy,’ he concluded.
