Experts predict interest rate hike as inflation surges | TrendyNewsReporters
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Experts predict interest rate hike as inflation surges

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In the wake of Nigeria’s rising inflation, economists have said that interest rates may hit an all-time high.

Earlier reports showed Nigeria’s inflation rate rose by 20.52 per cent in the month of August 2022, the highest since September 2005. There are speculations that the new figure might trigger an increased interest rate.

Interest rates and inflation often follow the same direction, according to economists.

Speaking in an exclusive interview with The PUNCH, Senior lecturer and economist at Pan Atlantic University, Olusegun Vincent, said that although the Central Bank of Nigeria had been reluctant in raising rates, it was becoming almost inevitable.

“You will notice that CBN has always been reluctant to jack up the monetary policy rate, which is a reflection of our interest rate in the economy, currently 14 per cent. And we see inflation at 20.52 per cent. Also, don’t forget that the food inflation is about 23 per cent. Despite all these, I believe the current figures don’t reflect the general increase of commodities in the market.”

Vincent explained that in order to combat the rising inflation, putting the interest rate on par was always the first course of action to create a balance.

“For me, personally the interest rate should go up because at the current figures, what we have is an abnormality. The interest rate is running below the inflation rate. Normally, the interest rate should be equal to the inflation rate plus the premium. The last level of interest rate should be equal to the inflation rate. So as it is, the CBN has no choice but to respond to the increasing level of the inflation rate because the only way to address this problem is to increase the interest rate.”

Professor of Economics and Public Policy at the University of Uyo, Akwa Ibom State, highlighted the fact that higher interest rates would not solve the inflation problem.

 “Well, in developed countries, central banks, when they have this kind of problem, increase interest rates to fight inflation. So, the CBN may do it but it won’t have any impact. They’ve done it twice and inflation keeps going up.”

Ekpo noted that an increased interest rate would not reduce the inflation rate because the problem was structural and not demand-driven.

According to Chief Executive Officer,  Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, in a statement obtained by PUNCH, said the major inflation factors had placed increased strains on the economic health of the nation.

“The heightened inflationary pressures in the Nigerian economy remain very troubling with headline inflation surging to 20.52 per cent in August.  Even more worrisome is the spike in food inflation to 23.12 per cent. However,  on a month-on-month basis,  there was a marginal drop in headline inflation by 0.05 per cent.

  “The reality is that the major inflation drivers have not abated, if anything, some have become even more intense.  These factors include high transportation costs, increasing logistics challenges, worsening exchange rate depreciation,  forex liquidity issues, a hike in energy prices,  climate change issues,  insecurity in many farming communities, and structural bottlenecks to production.  These are basically supply-side issues.”

Yusuf did not exonerate the central bank from many issues plaguing the country, as he said that “the accelerated fiscal deficit financing by the CBN is also a significant inflation driver. The financing of the fiscal deficit has been elevated to disturbing levels at almost N20tn. This has huge implications for the money supply and knock-on effect on inflation.  CBN financing of the deficit is high-powered money and very inflationary. It is an inflation tax.”

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