Consider Local Solution To Reduce Inflation Rate, Experts Urge CBN

Instead of frequently increasing the Monetary Policy Rate, Financial experts have urged the Central Bank of Nigeria (CBN) to consider local solutions to the rising inflation 

The two experts, Lolade Adesola with L.A. Consult and Tunji Adepeju gave the advice during an interview with the News Agency of Nigeria (NAN) in Ibadan on Thursday.

Adesola explained that the policy is to reduce excess liquidity in the economy because CBN believed that it was what has been driving inflation.

"The policy might not work in the country because the situation is called ‘Stagflation’; this is because we don’t have the economic growth along with the inflation.

“Now that the interest rate has been increased and makes the cost of borrowing so high, it will make it difficult for small businesses to borrow for production; again, this will lead to stagflation in economic growth.

“The approach is a textbook solution to inflation.

“I don’t know if that would work because we don’t have ordinary inflation in Nigeria but stagflation,” Adesola said.

She said that the way forward would be to continue to have intervention funds; bring in cheaper loans for targeted sectors of the economy.

“If those continue to borrow cheaply, maybe it will work.

“But, if we just do a blanket increase in the interest rate across all sectors, it may compound our problems,” Adesola said.

Tunji Adepeju, a Financial Consultant, said the rationale behind the increase is best known to the committee on MPR.

"This solution is similar to what the United Kingdom Government did.

"But to the ordinary man, I think this is the wrong step.

“There is no way you will increase the interest rate, leading to more inflation.

“We started from 11 per cent. It moved to 14 per cent in July and now 15.5 per cent because it couldn’t achieve what it wanted.

“The MPR rate will still increase by their next meeting.

“Inflation is an increase in prices of goods and services.

"For businesses, an additional charge on the loan rate will be added to the cost of production which will drive prices of goods and services up,” Adepeju said.