Economy watchers at the Lagos Chamber of Commerce and Industries say the CBN should have held off an increase or at best moderate, the key rate given the weak relationship between it and inflation especially after manufacturers and other businesses are groaning under high borrowing costs and the cash crisis.
According to the Director General of the Chamber, Dr. Chinyere Almona (FCE), the consistent hawkish stance by the monetary authority is in response to the high inflationary pressure. At 21.91%, the inflationary rate is more than twice the targeted range (6 – 9%) set by the CBN. Since April 2022, inflation has increased from 16.82% to 21.91% in February, 2023. Despite the 6.5% points increase in the key rate over the same period, inflation does not seem to be letting off.
”While the CBN has the overarching mandate of ensuring price stability, we suggest it should not be done in a manner that compromises growth, more especially in the face of high unemployment. Furthermore, the instrumentality of monetary policy alone appears quite insufficient to guarantee the desired results of low, stable, and predictable prices. We believe that structural rigidities around infrastructure and agriculture should be looked into and tackled to rein in inflation.
”Inflation chips away at purchasing power leads to inventory stockpiles, undermines growth, and creates a lot of economic uncertainties. Taming it, however, should not be done at the expense of growth and the most vulnerable sectors”.
The CBN’s Monetary Policy Committee (MPC) in its March 2023 meeting hiked the benchmark interest rate by 50 basis points to 18.0% from 17.5%. It, however retained the asymmetric corridor at +100 and -700 basis points around the policy rate. Cash Reserve Ratio (CRR) and Liquidity Ratio (LR) are held steady at 32.5% and 30%, accordingly. This is the sixth consecutive rate hike since April 2022.
The last CPI figures released by the NBS showed inflation slightly increased to 21.91% in February from 21.82% in January 2023. The price rises that continue to hit the system appear non-transitory.
