Following the speculations that the Central Bank of Nigeria may soon increase the key economic variables, like interest rate and Cash Reserve Ration, financial analysts have warned the apex bank that such move may pull the ailing economy further into depression.
They warned that increasing the variables like inflation rate, which is as high as 18.5 per cent, will make Nigerians witness further massive job losses, low consumer confidence and high volatility in the exchange rate, among other severe financial challenges.
Considering the current economic hardship facing the country, the Managing Partner, PAA Consult, Mr Peter Adebayo, insisted that it was unwise to increase key variables, advocating reducing them to the nearest minimum, in order to ease plights of manufacturers and Nigerians at large.
He stated that there was a need for the apex bank to lower the interest rate and adjust the CRR so as to encourage commercial banks to lend to the operators of Small and Medium Enterprises, who are the engine room of the economy.
“Though, the apex bank has not slashed these rates before now, but to prevent a total collapse, it is better it breaks the jinx and reduce the rates. I understand it may want to study the direction of the economy, being the first month of the year, but the best is to ease the pressure on the people.
An aggressive adjustment in a monetary policy tool could reverse recession. The interest rate should be reduced to 12 per cent, in order to take the country out of recession sooner than expected,” he told The Point.
Another economist, Dr. Sola Owoeye, urged the Godwin Emefiele-led CBN to reduce the rates, because it is obvious to industry watchers that the type of inflation the country is witnessing is not determined by demand but cost.
According to him, inflation is not as a result of excess money supply, which the CBN plans to mop up from the economy, but as a result of the increase in prices of commodities, which can be attributed to increasing cost of production.
To correct this anomaly, he said, “The interest rate must drop, to boost access to credit and the banks’ capability to increase credit. Existing policies were not helping, because when inflation becomes uncontrollable, it affects the poor people, but the rich can dwell on their savings to survive for a while.
“If the CBN claims it is floating the currency, why are the 41 items still banned? Rather, you should let the Ministry of Finance place a tax on those items, so that whoever that wants to import those items will have to pay so much because they are luxurious goods.”
