Nigeria’s biggest organised private sector professional group, the Lagos Chamber of Commerce and Industry (LCCI), has advised the Central Bank of Nigeria (CBN) to take additional measures outside interest rate hike to tackle inflation.
LCCI’s Director-General, Dr. Chinyere Almona, stressed the need for a corresponding boost to supply side factors of inflation to accompany the monetary policy instruments.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) raised interest rate by 100 basis point this week during from 13.0 per cent to 14.0 per cent this week in response to the surging inflation rate standing at 18.60 per cent as at June.
The CBN retained the asymmetric corridor of the MPR at +100 / -700 basis point, the Cash Reserve Ratio (CRR) at 27.5 per cent and liquidity ratio at 30 per cent.
Almona said that supply side factors like foreign exchange scarcity, insecurity, rising costs of fuels and weak infrastructural support for production must be addressed. She however posited that although the CBN rate hike was seen to be a necessary option considering that many other economies were raising rates for the same reason of taming inflation, the measure standing alone, was not sufficient to tame the spiralling inflation.
According to her, a comparatively low interest rate could make the country’s portfolio assets less attractive to asset buyers and offshore investors, saying this could make the economy suffer from massive capital flight with a negative effect on the exchange rate.
The CBN had at the last MPC meeting called on the Federal Government to prioritise ending insecurity to enable farming and other business activities return to normalcy.
The CBN was also advised “to continue its support to increase food supply in a bid to addressing food inflation.”
MPC lamented “the upward price pressure, particularly on transportation, resulting from the prolonged scarcity of Premium Motor Spirit (PMS) and called on the Federal Government to seek a long-term and viable solution, so as to strike a balance between the pricing and supply of PMS in Nigeria.”
Members also noted that the 150 basis points hike by the Committee in May 2022, “had not permeated enough in the economy to halt the rising trend in inflation,” stating that as a result, “the month-on-month percentage point increase in headline inflation rose sharply in June 2022 compared with the preceding month of May 2022,” he said.
A member of the MPC Professor Micheal Obadan told our correspondent that “because of the nature of the current inflation challenge, the hike in MPR was aimed at stemming excess liquidity through the demand side, adding that the supply-side measures implemented through the development finance interventions will continue.”