After carefully reviewing developments in the two months, and outlook of growth in the domestic and global economy as well as downsides of each policy…It is clear and compelling that tackling inflation is more urgent in sequence of policy objectives”.

That was the Central Bank of Nigeria (CBN) governor, Godwin Emefiele, at the end of the Monetary Policy Committee (MPC) meeting last Tuesday – an occasion during which he announced an increase in the reference lending rate – the Monetary Policy Rate (MPR) – from 11.5 to 13 per cent, the first in two years.

To begin with, the development did not come to us as a surprise. That has been the noticeable trend globally in recent time – a development exacerbated by the COVID-19 pandemic and the on-going war in Ukraine. Only recently, precisely on May 4, the United States’ Federal Reserve had lifted its benchmark interest rate by half a percentage point from a range of 0.75% to 1%, its biggest increase in 22 years, in response to the inflationary pressure. Ditto our ECOWAS neighbour, Ghana, which days back hiked its reference rate by 200 basis points to 19%, again in the bid to control inflationary pressures and promote macroeconomic stability. So, it is not as if Nigeria, whose inflation rate peaked at 16.82% in April, could afford to feign indifference to the global wave, or could be accused of taking precipitate action with the latest increase of the MPR.

Yet, the issue provoked by the CBN measure is difficult to ignore – the issue of which, between the biting effects of the current soar-away inflation with consequences in the erosion of the consumer purchasing power on the one hand, and, the hike in lending rates with corresponding risks in higher borrowing costs and potential for recession on the other hand – is to be feared more.

That the CBN sees inflation as a greater risk is certainly debatable. In reality, the larger picture would seem far more nuanced than is often presented by the apex monetary authority. Of equal worry is the tool possibly exacerbating the crisis, given the peculiarities of the Nigerian economy.

At least, that would appear to be the position of the umbrella body of the nation’s manufacturers – the Manufacturers Association of Nigeria (MAN). To MAN, the increase – considering the myriad of constraints already limiting the performance of the sector – is not ‘manufacturing-friendly’. In the words of its director-general, Segun Ajayi- Kadir, it will intensify demand crunch, increase the cost of manufacturing inputs, worsen the already declining profit margin of private businesses and heighten the mortality rate of small businesses.

He would add that: “It would further reduce capacity utilization, upscale the rate of unemployment, insecurity and reduce the pace of full recovery of the real sector, making manufacturing performance remain lackluster and lead to a leaner contribution to the GDP.”

These are strong, alternative viewpoints that the CBN will do well to consider. To this we can add the question of whether the current obsession with inflation-targeting isn’t somewhat skewed or misplaced. For, even if current exigencies make tinkering with the MPR inevitable, there are, no doubt, salient issues with further upward adjustments of a rate that is not only among the highest globally at the moment, but one in which the cost of lending is acknowledged to be source of much pain to the micro, small and medium scale sector. That is assuming that the implicit goal of the CBN measure is to keep the economy healthy and competitive.

So, while we agree that the fight against inflation is good; ensuring that sectors critical to the economy are not needlessly starved of the oxygen to maintain balanced growth would ordinarily, in our view, rank higher in the order of priority.

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