By Emeka Chiakwelu
The Central
Bank of Nigeria (CBN), the country’s supremely reserve bank has made a decision
of hiking the interest rate from 11% to 12%. It was puzzling to many financial
and monetary observers because it was less than three months that CBN reduced
the interest rate from 13% to 11%. Then it appeared that the monetary policy
was gearing towards enhancement of liquidity, but the latest u-turn has thrown
cold water to the pursuit of liquidity.
Many
essential commodities and food products are still imported and whenever there are
restrictions in importation, it does trigger inflation. Those that bear the greatest brunt of inflationary
trends are poor Nigerians. About 85 % of
the population are living with stagnant or no income and are surviving with
less than one dollar a day.
Due to the nosedive
of oil price, country generated limited foreign exchange; therefore importers
rely on the parallel market for acquiring of foreign exchange at a much more
exorbitant price. With fewer products in
the market, the prices of food products will go up and those consumers with
fixed income are barely surviving in the consumer market.
In order to
checkmate the surging inflation, CBN resort to hiking of interest rate. The mopping of liquidity has its downside for
it will principally depress business expansion and commercial growth. The prospect of solving the issue of inflation
becomes more elusive, if not dim because of the circumstances Nigeria found
herself. One of the matters rising from
constraints of monetary policy is the emergence of illiquidity. It implies that the interest rate of
borrowing will be higher and that is a major discouragement to the business
community and marketers.
The inflationary
trend will not be resolve by hiking of the interest rate; Nigeria’s problem is
much deeper than that. Despite the attraction of higher interest rate, the
investors are not coming because of country’s debilitated infrastructures, poor
image, remittance policy and price instability.
This is just
the beginning; the more hiking of interest rate appears to be call of the
future because inflationary pressure is not going to ease due to 1% hike. The country’s reserve bank has demonstrated
its limited monetary policy contribution that may become waned in face of
daunting challenges as the fiscal policy of the executive is struggling to
define itself.
(Chiakwelu is Principal Policy Strategist at AFRIPOL. )
No comments:
Post a Comment
Please restrict your comment to the subject matter.