The Lagos Chamber of Commerce and Industry (LCCI) acknowledges the recent decision of the Central Bank of Nigeria (CBN) to raise the benchmark lending rate by 400 basis points to 22.75%, in what has been described as an aggressive regulatory intervention.
The move comes at a crucial time for the Nigerian economy, facing challenges such as elevated inflation, commodity price hikes, the FOREX crisis, and rising cost of production. 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.
The CBN has increased the Monetary Policy Rate (MPR) from 18.75% to 22.75%, 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%, compared to 28.92% in December 2023. The year-on-year increase is notable, with a rise of 8.08% points from January 2023. We cannot say the hikes in rates have had any significant impact on curbing inflation in Nigeria, especially in recent months.
The Chamber’s view on the current fight against inflation is that the 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. 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. On the fiscal side, the government needs to subsidize some productive sectors like agriculture, transport, and healthcare while keeping a stern eye on enhancing the country’s security profile. Other areas of intervention could be the adoption of a cheaper duty rate for the importation of agricultural inputs for local manufacturing and investment in building agro-industrial hubs across the country.
The LCCI urges the government to continue making credit available to MSMEs to support their operations and production lines. Concessionary rates, lower than CBN prevailing MPR, are hereby advocated for the MSMEs. The high lending rates make it challenging for businesses to access credit, especially for SMEs that are the backbone of the economy. The increase in production costs could lead to higher prices for goods and services, potentially affecting the competitiveness of Nigerian products in Africa and global markets respectively.
As the voice of the business community, the LCCI remains committed to engaging with policymakers to ensure a conducive business environment that fosters growth, investment, and sustainability.
DR CHINYERE ALMONA, FCA
DIRECTOR GENERAL
LAGOS CHAMBER OF COMMERCE & INDUSTRY
27TH FEBRUARY 2024
