Hike In Benchmark Lending Rate To 14% Won’t Curb Inflation, Expert Tells CBN
The President, Association of Capital Market Academics of Nigeria, Prof Uche Uwaleke has said that the decision of the Central Bank of Nigeria to increase the benchmark lending rate from 13 per cent to 14 per cent will not curb inflationary pressures.
He said this while reacting to the decision of the Monetary Policy Committee of the CBN where members agreed to hike the Monetary Policy Rate.
The Committee raised the MPR, which measures interest rate, from 13 percent to 14 percent to tame rising inflation.
Nigeria’s inflation rate rose in June to its highest level in more than five years, fueled by rising prices of food and the high cost of diesel.
The inflation rate increased to 18.60 per cent in June, up from 17.71 percent in the previous month, the National Bureau of Statistics (NBS) said on Friday.
The new rate is the highest the nation has recorded since January 2017.
The NBS said last Friday that the rate is 0.84 percent points higher compared to the rate recorded in June 2021, which is 17.75 percent.
Inflation globally, remains a major concern following the Russia Ukraine war which has affected energy prices and caused disruption to supply chains.
After holding the Monetary Policy Rate constant at 11.5 per cent for about two and a half years, members of the MPC at their last meeting held in May raised the benchmark interest rate by 150 basis points to 13 per cent in response to global inflationary pressures, which had continued to hurt economies around the world.
The MPR is the rate at which the apex bank lends to commercial banks and often determines the cost of funds in the economy.
Reacting to the development, Uwaleke who is Nigeria’s first Professor of Capital Market Studies said the MPR hike could signal panic on the part of the CBN and heighten uncertainty.
He said the current policy stance may not necessarily curb inflationary pressure given that the pressure is not coming from monetary factors but from high costs of petroleum products, electricity and insecurity.
The Varsity Don said, “The hike in the MPR in quick succession from 11.5 per cent to 13 per cent in May and now to 14 per cent could signal panic on the part of the CBN and heighten uncertainty.
“This policy stance may not necessarily curb inflationary pressure given that the pressure is not coming from monetary factors but from high costs of petroleum products, electricity and insecurity. Ditto for rising Exchange rate.
“So, expect to see in the coming months higher cost of borrowing, widening government deficit, slower economic growth, rising unemployment and bearish stock market.”