Inflation in Africa’s most populous nation has risen after six consecutive rate rises by the Central Bank of Nigeria (CBN).
The top bank raised the rate for the first time in six years in May 2022 to battle the bullish inflation of ten straight months last year and a third consecutive increase this year.
Following the first rate hike, the benchmark rate was raised three more times last year by 400 basis points to 17 percent, twice this year to 17.5 percent, and most recently to 18 percent.
NBS data shows a 17-year high inflation rate of 22.04 percent in March 2023.
Rate rises have not reduced inflation, according to statistics. The monetary authorities should modify their approach to inflation, experts say.
In a flash note dated April 16, 2023, KPMG Nigeria emphasised that inflation is cost-driven and does not require rate rises.
The statement stated, “The reversal of inflation in March after an apparent slowdown in February strengthens our view that the causes of inflation in Nigeria are essentially cost-push factors that are out of monetary authorities’ control.
Basil Abia, research consultant Kwakol, and others explained why MPC rate rises had not influenced inflation in a paper titled “Report Card: CBN’s New Naira Policy and Interest Rate Hikes.”
“The CBN’s vigorous effort to curb Nigeria’s high inflation through repeated interest rate rises has failed.” Because monetary tightening doesn’t work for Nigeria’s supply-side or cost-push inflation, inflation continues to increase.
“It is vital to highlight that Nigeria’s inflation is driven by supply-side concerns that boost the cost of production and, indirectly, consumer prices.”
The Nigerian stock market, bond market, loan rate, consumer and company expenditure, and asset values are all affected by interest rate changes.
Lower benchmark interest rates cut loan rates, making borrowing more appealing. More money means greater spending. Conversely, high-interest rates make financing costly and reduce spending.
As production financing costs rise, firms are affected.
Experts say banks react to interest rate swings. According to BusinessDay, commercial banks charge 20–35%.
“The increase in the MPR portends significant negative effects for the industrial sector,” MAN’s Ajayi-Kadir wrote.
He claimed the rate hike will raise company borrowing costs over the current double-digit rate, discouraging fresh investments.
He emphasised that it would raise factor costs and product prices, rendering the country’s industry unproductive.
The average interest rate paid to Nigerian manufacturers in the first half of 2021 was 24 percent, up two percentage points from 2020.
South Africa, Kenya, Morocco, and Botswana had MPRs of 7.75 percent, 9.5 percent, 3 percent, and 2.5 percent, respectively, compared to Nigeria’s 18 percent.
After the Russia-Ukraine conflict last year and a high US dollar versus their domestic currencies, many economies, especially African ones, are dealing with inflation.
Due to the global economic slump, several central banks have raised their monetary policy rates.
Consumer spending power and demand for goods and services diminish when lending rates are high, which lowers inflation, and vice versa when rates are low.
Nigerians find it tougher to buy food, rent, and other necessities under high-interest rates and inflationary settings.
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The 2022 Multidimensional Poverty Index (MPI) study by the National Bureau of Statistics found that 133 million of Nigeria’s 211 million people are multidimensionally poor (NBS).
According to the research, 25% of Nigeria’s poor have an MPI score of 0.257 and experience all forms of deprivation.
According to the World Bank, Nigeria’s fast inflation increase has degraded the N30,000 minimum wage by 55% and expanded the poverty net to five million people in 2022.
According to a new analysis by financial advice firm Afrinvest (West Africa) Ltd., Nigeria’s rising inflation rate has degraded the N30,000 monthly minimum wage by more than 40% since 2019.
Since the national minimum wage was raised to N30,000 from N18,000 in 2019, the headline inflation rate index has risen by 68.3 percentage points (ppts) from 2019 year-end to 517.39 points in February 2023, according to the report “The Cost of Nigeria’s Spiralling Inflation Rate on the Average Household.”
