By Francis Akinnodi

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Economic experts have posited that the decision of the Godwin Emefiele-led Central Bank of Nigeria (CBN) to incessantly hike the Monetary Policy Rate would not achieve the desired aim of taming inflation.

The Hope reports that the apex bank had last week after the policy-setting committee meeting increased interest rates from 18% to 18.50%.

The decision was the third time in a row that the apex bank has raised the monetary policy rate (MPR), which gauges interest rates.

They said the policy choice would continue to fail and not achieve desired target of taming the rising inflation in the country.

“The trend of CBN monetary policy over the last few years has being that of policy tightening aimed at taming inflation.  But this policy choice has failed to reckon with domestic peculiarities driving inflation. The key drivers of Nigeria inflation are supply side variables, not demand driven. The several hikes in over the years have not had any significant impact on the inflation. If anything, the general price level became even more elevated.”

While recognising the apex bank’s mandate of price stability, a former Director-General of the Lagos Chamber of Commerce and Industry (LCCI) and Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr Muda Yusuf said the bank’s approach might not provide the desired result in the long and short term.

“We recognize that the primary mandate of the CBN is price stability, but numerous headwinds had posed significant risks to this critical objective. Some of these include the surge in commodity prices and impact on energy cost, disruptive effects of insecurity on agricultural output, and global supply chain disruptions. The hike in MPR would not change these variables.

“Already, bank lending has been constrained by the high CRR [many operators in the sector claim that effective CRR is as high as 50% or more for many banks], the discretionary debits by the apex bank and liquidity ratio of 30%. Lending situation in the economy is already very tight.

“The Nigerian economy is not a credit driven or interest rate sensitive economy, unlike what obtains in many advanced economies which have much higher levels of financial inclusion, robust consumer credit framework and strong correlation between interest rate and aggregate demand.  The level of financial inclusion in the Nigerian economy is still quite low, access to credit by households and MSMEs is still very challenging, and the informal sector accounts for close to 50% of the economy.”

According to a renowned economist, Dr. Timothy Awe said persistent hike in MPR only means that the cost of credit to the few beneficiaries of the bank credits had continued to increase.

“Private sector bank credit as a percentage of GDP is less than 20% in Nigeria. It is over 100% in South Africa and over 200% in the United States. This underscores the variabilities across economies; thus, policy responses have to be different.

“The transmission effects of monetary policy on the economy are therefore still very weak.  In the Nigerian context, price levels are not interest sensitive. Supply side issues are much more profound drivers of inflation.

“Persistent hike in MPR only means that the cost of credit to the few beneficiaries of the bank credits had continued to increase with impact on their operating costs, prices of their products and profit margins.”