The Lagos Chamber of Commerce and Industry (LCCI) has expressed concerns about the effectiveness of the Central Bank of Nigeria’s (CBN) recent decision to raise the benchmark interest rate by 400 basis points to 22.75 percent.
This marks the fifth consecutive hike implemented by the CBN in its attempt to combat rising inflation.
While acknowledging the urgency of addressing the elevated inflation rate, the LCCI argues that focusing solely on demand-side management through rate hikes may not be sufficient.
The Lagos chamber points out that the January 2024 inflation rate of 29.90 percent demonstrates the limited impact of previous hikes.
The chamber instead urges the CBN and government to prioritise tackling the root causes of inflation, particularly supply-side deficiencies.
“While the CBN intends to control inflation, the LCCI notes that the decision, particularly the fifth consecutive hike, raises concerns about its effectiveness in tackling the rising food inflation and the likely impact on businesses and economic growth,” Chinyere Almona, LCCI’s director general said in a statement.
She added, “The CBN has increased the Monetary Policy Rate (MPR) from 18.75 percent to 22.75 percent, signaling a significant shift in monetary policy.”
“Curbing the current rising inflation clearly requires an effective combination of both fiscal and monetary policies to achieve a meaningful result.”
According to the latest data, the headline inflation rate for January 2024 rose to 29.90 percent, compared to 28.92 percent in December 2023. The year-on-year increase is notable, with a rise of 8.08 percent from January 2023.
“We cannot say the hikes in rates have had any significant impact on curbing inflation in Nigeria, especially in recent months.”
According to the chamber, monetary and fiscal authorities should focus on the factors driving the inflation rates by tackling the supply-side deficiencies instead of focusing too much attention on the demand-side management.
The LCCI emphasises the need to complete ongoing reforms in the foreign exchange market, as the high exchange rate against the naira significantly contributes to inflation.
“We urge the CBN to continue with its FOREX market reforms to a conclusive end, as the high exchange rate against the naira is a major culprit in the skyrocketing inflation rates,” the statement said.
Furthermore, the chamber suggests government subsidies for crucial sectors like agriculture, transport, and healthcare. Additionally, they recommend adopting lower duty rates for agricultural input imports and investing in building agro-industrial hubs nationwide.
The LCCI urges the government to ensure continued credit availability for MSMEs at concessionary rates lower than the current MPR. This is crucial to support their operations and production capacity, considering the detrimental effect of high lending rates on business access to credit and potential impacts on product competitiveness.
“The high lending rates make it challenging for businesses to access credit, especially for SMEs that are the backbone of the economy.”
