The Central Bank of Nigeria (CBN) will not reduce inflation in the nation, according to the World Bank, despite tightening monetary policy.
This was revealed by the Bretton Woods institution in its assessment on world economic prospects, which was made public on Wednesday.
The increase in interest rates to rein in skyrocketing inflation is known as the monetary policy rate (MPR) tightening. The World Bank noted that one danger associated with Nigeria’s economic expansion is the inability to enforce stricter inflation regulations.
Experts have contended that high interest rates make borrowing more difficult for manufacturers, contractors, and other borrowers; thus, low productivity brought on by job losses results.
Interest rates have risen by 750 basis points since the Monetary Policy Committee (MPC) meeting resumed this year, rising from 22.75 percent in February to 26.25 percent in May.
“Risks to Nigeria’s growth outlook are substantial, including the possibility that the tightening of monetary policy stops short of reining in inflation,” the World Bank stated in its most recent assessment.
The analysis also projected that Nigeria’s economic growth rate will not change for the remainder of 2024 or 2025.
According to the World Bank, Nigeria’s growth would accelerate to 3.3% this year and 3.5% in 2025.
Following the initial shock of the macroeconomic reforms, the economy is predicted to steadily improve, leading to a prolonged but still modest development in the non-oil sector.
It also emphasized that “as production somewhat recovers, the oil sector is expected to stabilise.”
The CBN Deputy Governor in charge of the Financial System Stability Directorate, Philip Ikeazor, also made the argument in his remarks as an MPC member at the 151st MPC Meeting on March 25–26, 2024, that the economy will be further depressed by successive aggressive tightening of interest rates due to the manufacturing and oil sectors’ poor growth contributions and susceptibility to rate hikes.
“The pressure point is already manifesting,” according to Ikeazor, who also noted that the industrial sector’s PMI is expected to decline by 7.1 index points due to poor capacity utilisation and rising input costs.
In his statement, Aloysius Uche Ordu, a fellow member of the MPC and the director of the Africa Growth Initiative in the Global Economy and Development Programme at Brookings, emphasized the impact of rising interest rates on business investments and consumer spending, as evidenced by the composite purchasing managers’ index in February 2024.
He stated that in order to reduce the possibility that inflation may stay high for an extended period of time, significant progress in resolving supply-chain problems and other cost-push factors is required. He also added that such a result would negatively impact the economy and make life tough for Nigerians.
“It would be much more expensive to reduce later through even higher interest rates, larger output losses, and higher unemployment if we allowed higher inflation to become entrenched in people’s expectations,” the speaker stated.
CBN Governor and MPC Chairman Olayemi Cardoso expressed more alarm in a personal statement, saying, “If such a hyperinflationary scenario is to become reality, available options to control inflation could be severely constrained.”
Cardoso stated that it is abundantly evident from the data submitted to the MPC that the monetary forces driving inflation are becoming less significant.
