Economists and members of the Organised Private Sector (OPS) have raised alarms over the Central Bank of Nigeria’s (CBN) latest decision to increase the Monetary Policy Rate (MPR) to 26.25%. This substantial rise, announced after the Monetary Policy Committee’s (MPC) 295th meeting, is feared to potentially cripple the ability of businesses to manage their loan repayments.
Central Bank Governor Olayemi Cardoso, who also chairs the MPC, justified the 150 basis points hike from the previous rate of 24.74%, marking the third consecutive increase this year. This brings the total increase since February to 750 basis points. Initially, the MPR was raised from 18.75% to 22.75% in February, followed by another increase to 24.75% in March.
Cardoso emphasized that the decision aims to control inflation and stabilize prices. “The key focus of the MPC at this meeting remained to achieve price stability by effectively using tools available to the monetary authority to rein in inflation,” he stated. He noted a moderate rise in year-on-year headline inflation for April 2024 but highlighted a significant month-on-month decline in headline, food, and core inflation rates, suggesting that the tight monetary policy is starting to take effect.
“For the first time since October, we have seen a relatively significant moderation in the rate of increase and that is working,” Cardoso added, expressing confidence in the measures implemented by the CBN.
Despite these efforts, Nigeria’s inflation rate climbed to 33.69% in April 2024, up by 0.49 percentage points from March, according to the National Bureau of Statistics (NBS). The year-on-year headline inflation rate also surged by 11.47 percentage points from April 2023, while food inflation reached 40.53% in April 2024.
The MPC’s aggressive approach to combating inflation comes amidst a turbulent economic environment and persistent naira volatility. Cardoso attributed the fluctuations in the foreign exchange market to seasonal demand and the dynamics of a free market system. He noted a slight increase in foreign reserves between March and April 2024.
Business leaders and economic analysts are wary that the escalating interest rates could burden private sector operators, complicating their ability to service debts and potentially leading to a broader financial crisis. As the country grapples with high inflation and monetary tightening, the private sector is bracing for challenging times ahead.
