CBN should raise interest rates to tackle inflationary pressure – Kroszner

The Central Bank of Nigeria (CBN) must raise interest rates so as to tackle inflationary pressure which has attendant negative consequences for the economy, Randall Kroszner, Professor of Economics, The University of Chicago Booth School of Business, said on Thursday.

Kroszner, who spoke at the ongoing BusinessDay CEO Forum themed ‘A Breakthrough Approach to Leadership and Innovation in the Age of Disruption’, said although the low interest rate environment may drive growth in the short run, the long-run consequences of higher inflation might be destructive for the economy.

This destruction, he noted, will be in the form of devaluation of the currency internationally and further weakening of purchasing power.

“The CBN should rein in inflation because if it gets out of control it can destroy the economy and destroy the value of the currency internationally,” Kroszner said during the conference.

Interest rates on most assets, particularly fixed income instruments, have reached near zero after a raft of CBN policies, aimed at boosting credit in a fragile economy, limited non-bank domestic investors from participating in high-yielding OMO bills, with excess liquidity from the market pressuring inflation.

In a bid to boost economic growth, CBN cut the benchmark interest-rates by 100 basis points to 11.5 percent. Meanwhile, commodity prices trended higher to 14.23 percent in October, reaching the highest level in 31 months.

But speaking at the event, Kroszner said the CBN needs to increase interest rate so as to signal to the international community that it is bent on tackling higher commodity prices.

“They should signal that they are worried about inflation, and they want to bring it down,” he said.