The recent decision by the Central Bank of Nigeria (CBN) to increase the Monetary Policy Rate (MPR) to 27.50% has raised alarms from both the labour movement and the Organised Private Sector (OPS). The hike, which marks a 25 basis points increase from 27.25% in September 2024, aims to tackle the pressing issue of inflation, which had reached 33.87% in October. During a press briefing following the CBN’s 298th Monetary Policy Committee (MPC) meeting, CBN Governor Olayemi Cardoso expressed confidence that the effects of these monetary policies would begin to manifest by the first quarter of 2025. Along with the MPR adjustment, the CBN retained the Cash Reserve Ratio (CRR) and liquidity ratios, underscoring a cautious approach in handling the prevailing economic challenges.
The Nigeria Labour Congress (NLC) reacted strongly against the interest rate hike, asserting that it would exacerbate the costs of borrowing for businesses. A senior official of the NLC outlined how the increase could severely affect production and investment, arguing that Nigeria’s inflation is fundamentally cost-push, primarily driven by structural issues like energy costs and unstable exchange rates. Higher borrowing costs threaten to quash investment further, especially as manufacturers are already facing elevated expenses due to expensive energy and raw materials. The NLC posits that merely tightening monetary policy without addressing these underlying causes may lead to increased prices for consumers, reduced demand, and potentially higher unemployment rates through business closures.
Echoing the concerns of the NLC, Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, warned about the negative implications of the CBN’s hawkish posture on the real economy. He highlighted the troubling data from Nigeria’s third-quarter GDP report, which reveals sluggish growth in key sectors like agriculture and manufacturing. Yusuf contends that key sectors require supportive monetary and fiscal policies rather than tightening measures that could hinder their recovery. He emphasized the necessity for the CBN to bolster development finance institutions to alleviate the financial strains imposed by its restrictive policy, arguing for a balanced approach that focuses on stimulating growth in sectors currently facing considerable challenges.
Adding to the discourse, Dr. Femi Egbesola, President of the Association of Small Business Owners of Nigeria, emphasized the dire consequences of rising interest rates on small and medium-sized enterprises (MSMEs). Egbesola argued that the constant increase in MPR merely escalates borrowing costs, leading to higher instances of loan defaults and non-performing loans. He suggested that these economic pressures would not only stifle business expansion but also result in diminished consumer spending and profitability. Given that MSMEs form the backbone of Nigeria’s economy, employing over 80% of the workforce, Egbesola advocates for focused fiscal policy support and collaborative dialogues to cushion the adverse impacts of such aggressive rate hikes.
The broader economic implications of CBN’s recent policy changes complicate the landscape for both businesses and consumers. With inflation being driven by structural factors, as emphasized by both NLC and OPS representatives, merely manipulating interest rates appears insufficient to combat the persistent economic malaise. Industry voices underscore the urgent need for contextually relevant economic strategies that balance the necessity of inflation control against sustaining economic growth. Calls are mounting for the Nigerian government to pursue policies focused on improving energy access, stabilizing the exchange rate, and fostering an environment for affordable credit, crucial for stimulating production and investment.
In summary, the recent MPR hike by the Central Bank of Nigeria has ignited robust discussions among labor and business leaders regarding its potential repercussions on the economy. While the CBN maintains that the hike is necessary to combat inflation, stakeholders across the board express concerns over the disconnect between monetary policy and the realities faced by critical sectors of the economy. As discussions unfold, it is clear that a reevaluation of policy approaches is vital to navigate Nigeria’s complex economic challenges, ensuring that both inflation control and sustainable growth can be achieved simultaneously in a fragile economic landscape.
