Experts predict another increase in interest rates as Nigeria’s inflation hits a seven-year high

The Central Bank’s Monetary Policy Committee (MPC) will maintain its subsequent assembly on July 24-25. Experts predict another increase in Nigeria’s interest charge in response to the nation’s inflation which hit a seven-year high in June.

The Central Bank of Nigeria (CBN) is prone to increase the nation’s interest charge to tame rising inflation. Yesterday, the National Bureau of Statistics (NBS) launched the numbers for June 2023, and so they don’t look good. Nigeria’s headline inflation hit a seven-year high of twenty-two.79%, pushed by a rise in the costs of meals. The CBN’s Monetary Policy Committee (MPC) will maintain its subsequent assembly on July 24-25 to deliberate on interest rates. Experts who spoke to TechCabal predict that surging costs could pressure the apex financial institution to lift the Monetary Policy Rate (MPR) from 18.5% to 19.5%. 

Basil Abia, a analysis and coverage guide, predicts that the CBN will increase the MPR by 100 foundation factors to 19.5%. “This decision is motivated not only by persistent inflation but also by external pressures from some Foreign Portfolio Investors (FPI) who want to see attractive market yields in Nigeria’s equity markets,” he informed TechCabal.

In the previous 12 months, CBN has employed the MPR as a instrument to sort out Nigeria’s inflation charge which has sarcastically continued its uptrend. According to Bloomberg, the MPC has raised the rates by 700 foundation factors since May 2022. But consultants have argued that Nigeria’s rising inflation can’t solely be solved by elevating MPR.

Samuel Oyekanmi, a analysis analyst, mentioned the present inflation is tied to produce and never demand. “The current inflation is driven by food supply shocks across the country due to the rise in fuel prices. Also, the unification of the exchange rate and naira devaluation have affected the cost of importation,” he informed TechCabal. 

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President Bola Tinubu’s financial reforms—such as the elimination of gas subsidies, unification of the trade charge, and naira devaluation—have triggered value will increase in the nation. Last week, he declared a state of emergency to deal with surging meals costs. Food inflation was up by 25.25% on a year-on-year foundation in June 2023, in keeping with the NBS information.

Where does this go away Nigerians?

MPR is the benchmark interest charge in an economic system.  It is the speed at which the apex financial institution lends to business banks and infrequently determines the price of funds in the economic system. So, rising the MPR, whereas aiming to deal with inflation, would have some unintended destructive penalties for the Nigerian economic system. 

According to Abia, one such consequence is the restriction of credit score availability throughout the banking system, which might restrict the borrowing capability of the personal sector, particularly small and medium enterprises (SMEs). “This will put additional financial pressure on SMEs and consumers who are everyday Nigerians. This pressure will potentially lead to higher prices for goods and services, affecting the overall cost of living for individuals and the operational costs for businesses,” he added.

Oyenkanmi shares a comparable view. If interest rates are going up, some individuals won’t be capable to meet their debt obligations to the banks. “The CBN must be considerate in their approach and take lessons from other countries of the world where banks were declared bankrupt because of multiple interest hikes by their various central banks,” he informed TechCabal.