THE World Bank has stated that the Central Bank of Nigeria’s tightening of monetary policy is unlikely to effectively combat inflation in the country.
This was revealed in the global economic prospects report released by the international financial institution on Wednesday.
The tightening of the monetary policy rate (MPR) involves raising interest rates to curb rising inflation.
Despite this measure, the World Bank has flagged the failure to implement stringent policies on inflation as a risk to Nigeria’s economic growth trajectory.
Economists argue that high interest rates hinder borrowing for manufacturers, contractors, and others, leading to reduced productivity and job losses.
Since the Monetary Policy Committee (MPC) resumed its meetings this year, interest rates have surged from 22.75 per cent in February to 26.25 per cent in May, marking a significant increase of 750 basis points.
The World Bank’s latest report cautions that there are substantial risks to Nigeria’s growth prospects, including the possibility that monetary policy tightening may not effectively curb inflation.
The report projects Nigeria’s economic growth to reach 3.3 per cent in 2024 and 3.5 per cent in 2025, highlighting an anticipated gradual improvement in economic conditions and a stabilization of the oil sector.
At the 151st MPC Meeting in March 2024, Philip Ikeazor, the CBN Deputy Governor overseeing the Financial System Stability Directorate, raised concerns about the economic impact of aggressive interest rate hikes on the oil and manufacturing sectors.
Another MPC member, Aloysius Uche Ordu, emphasized that raising interest rates could dampen consumer spending and business investments, potentially prolonging high inflation levels and disrupting the economy.
Furthermore, CBN Governor and MPC Chairman, Olayemi Cardoso, warned about the potential challenges in controlling inflation if it escalates to hyperinflation levels, stressing the importance of addressing monetary factors contributing to inflation to prevent adverse economic consequences.
