The Central Bank of Nigeria’s interest rate hike may create a sluggish or stagnant economy for the country, economists have warned.
The increase in interest rate and floating of naira by the CBN are moves that will crowd out investment and job opportunities, according to an economist and researcher, Mr Paul Alaje.
Also, a chartered accountant and retired director of First Bank of Nigeria, Lateef Bakare, described the apex bank’s policies as unrealistic.
Alaje, who is a Chief Economist at an economic development research firm in Lagos, SPM Professionals, warned that more people are likely to lose jobs if the CBN does not review some of its financial policies.
The analyst who spoke with Saturday PUNCH in a telephone interview on Thursday maintained that the apex bank has the responsibility to fix things and bring prosperity and balance to the nation’s economy.
He said, “The CBN’s move has been towards mitigating inflation, but the apex bank should not create more problems. The CBN is likely to create a stagnant or sluggish economy with the increasing interest rate. An economy that is not growing higher than the population growth rate is flat. We are running at that risk.
“You are crowding out investment and employment opportunities when you continue to increase interest rate while the exchange rate is also growing higher. When that happens, more people will lose jobs and there won’t be progress in the country’s economy.
“The CBN has maintained an all-time high interest rate, which compels banks to charge more on the cost of loans. Commercial banks provide loans with 30-32 interest rates while money lenders give out money between 120% and 150% rate.
“When you have these interest rates, you are crowding out investment and job opportunities. Instead of having economic growth, what you will see is people losing jobs while those who are jobless do not have opportunities because factories, industries and companies are closing down. The cost of doing business is too high.”
Three weeks ago, the CBN’s Monetary Policy Committee agreed to increase the Monetary Policy Rate for the third consecutive time from 24.75 per cent to 26.25 per cent.
Speaking after the meeting the CBN Governor, Yemi Cardoso, who chaired the MPC announced that “the apex bank resolved to raise the MPR by 150 basis points to 26.25 per cent from 24.75 per cent.”
Commenting on the MPR, Bakare said the interest rate hike would further plunge Nigeria into a messier economic situation, saying job providers and industries would find it difficult to breathe.
“The policies of the CBN are not just realistic. There must be a fundamental way than this classical economic theory approach. Once you introduce policies that will hurt the manufacturing sector, the next thing you get is loss of jobs and a fragile economy”, he stated.
