Recently, in an aggressive push to contain the country’s inflationary pressure, the Central Bank of Nigeria (CBN) raised its benchmark interest rate otherwise known as the Monetary Policy Rate (MPR) by 50 basis point to 18 percent. The CBN Governor, Godwin Emefiele, who disclosed this after the MPC meeting in Abuja, said the CBN expected moderate tightening to slow the rate of inflation without necessarily hurting output. He was speaking against the backdrop of Nigeria’s inflation rate, which accelerated to 21.91 percent in February from 21.82 in January. According to the National Bureau of Statistics (NBS), the development was fueled essentially by the cost of energy, food and Naira scarcity. Nigeria’s annual Gross Domestic Product (GDP) growth rate slowed to 3.10 percent in 2022, compared to 3.40 percent in 2021.

By the new increase in the monetary policy rate, the CBN has capped the official interest rate at 18 percent from 17.5 percent in January. According to Emefiele, the MPC voted to keep the Cash Reserve Ratio (CRR), the share of a bank’s total customer deposits that must be kept with the CBN in form of liquid cash, at 32.5 percent and the liquidity ratio, the proportion of deposits and other assets they must maintain to be able to meet short-term obligations, at 30 percent. In January, the MPC had raised its benchmark lending rate from 16.5 percent to 17.5 percent in a sustained push to control inflation and ease pressure on the naira. In raising its controlling interest rate to 18.50 percent, the CBN sustained the rate hikes it has embarked upon since May 2022 as an antidote to spiraling inflation which reached a massive high of 22.22 percent for April 2023.

Although the CBN’s avowed intention is to curb the inflationary pressure, the imposition of 18.5 percent interest rate came at a time when the economy has been steadily declining, with no serious indices of growth. Ordinary Nigerians can therefore be pardoned for believing that the government’s measures have failed, consistently inflicting misery on them. It is a legitimate question to ask how small scale businesses are expected to survive with this high interest rate, and whether the CBN is not more or less shrinking opportunities for investment. It is a no-brainer that if local industries are crippled, then there will be problems.

The CBN has justified the rate hikes as having helped to stem the inflation spark by about 8 percent even as Nigerians who have been bearing the negative brunt of high prices would not be persuaded by such rhetoric. Incidentally, the economy recording slowed growth in the first quarter of 2023 would indicate that whatever the government and the CBN had been doing did not seem to be able to engineer economic growth, which is what is needed to spur production and productivity. Enveloping misery within a context of decreased production and spiralling inflation has been the lot of most Nigerians under this CBN regime of rate hikes, with industries being unable to function under such high interest rates.

Rather than hoping to tame inflation by raising interest rates to unimaginable levels that squeeze out production, a correct and more effective approach would be to seek to stimulate production in the economy. We expect the government and the CBN to continue to review and reassess fiscal and monetary policies with a view to aligning them to reenergise the economy with revamped production. This is the way to stem the misery of Nigerians going forward.

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