In recent time,the most unavoidable question confronting many economist and political economist.Is Should interest rates be low or high?
Unfortunately, the the entire global economy environment is in bad shape.With so much to bear,from energy complication issues,to food and logistic chain disruption as well as uncertainties in finacial flow.
Whereas, the big blow from all this, is the decision of Central Bank across the world in tightening monetary measures on cash flow.In the hope of keeping inflation at bar, with controllable fiat.
Regrettably, inflation is makinga a mess of currency,by weakening purchasing power ,and eroding it value.
Chiefly,by making a mockery of early decision that seems not to be working for a global econony that have so pride in profit after profit.The only trust now is jerking interest rate up,off cause this on it own is a never to be trusted. Reasons been it complications that spew it negatives on the poor.
For instance, there is no universal rule when it comes to raising or lowering interest rate.Nevertheless,what must central bank is interested in is minimal stability.And this comes with it own issues, especially for underdeveloping and developing economies that may not find it suitable.Becuse there’s is an unstable and poorly manage economy respectively. Hugely suffering from fiscal Imbalance,government debt,corruption, and poor revenues.
So what can interest rate hike do for broken economy like Nigeria.That it Central Bank lately raised interest rate to 14 percent from previous 13.percent and 11.5 percent.
Instructively, the Central Bank of Nigeria (CBN) governor, Godwin Emefiele, said the hike in interest rate would help address Nigeria’s rising inflation.This is quite bold going by the latest Nigerian inflation rate standing at 18.60 Per cent.And occupying eight position amongst the 10 Sub sahara African countries with higher inflation.
Unfortunately, the CBN Monetary Policy Committee (MPC) decision conotes the second consecutive time it would raise the benchmark rate in 2022. Sadly, inflationary pressure in Nigeria is fueled by rising prices of food and the high cost of diesel.
In the same vein, rise in staple food like bread, cereals, potatoes, yam, meat, fish, oil and fat, and wine.Are worries to many Nigerians across board.
Succinctly, Nigerians are questioning the rational behind the CBN interest rate hike.With clear understanding that raising interest rates is not a solution to the inflation problem. Rather this is more or less, a mechanism of anti-crisis monetary economic policy, that may not work well.
Particularly as inflation in our clime is driven by high cost of prices, low supply of goods and essential commodities.Not ruling out sabotaging elements that constitute hoarding and artificial scarcity.
However,a critical look at this CBN decisions in hiking interest rate is for us to think through.
First, what is the apex bank aiming at?. Is it a short term measure to attracting increase in stock and bond sales on the stock markets and maintaining liquidity in the financial systems.As it being currently done in developed nations, to mopup excess cash in the system.
Another, is the CBN trying to avoid counteracting an economic crisis such as not to adding to the 35 per cent unemployment rate, failed manufacturing sector, dwindling investment environment weakening citizens’ purchasing power and income, amongst others.
On the other hand, for us we not in doubt that the CBN is aware that several of it specific instruments of interventionism. As failed to resuscitate our broken economy.
Even though it target financial support to SMEs micro and big, and the real sector where faced with high cost of production.
As much as we would like to commend the intervention instruments of the apex bank.The obvious as we know and the CBN cannot run away from is that the structural deficit in our economy.Is too deep to entertain interventionist deleveraging.Throwing money at opportunist individual and groups.Whom themselve are potential risk against real economic production.What we are saying is that the situation,the recent intervention fall short of what should be done talkless of jerking up interest rate. As this has further, compound the macroeconomic problems. Thereby creating a a gap of no confidence and as well as the risk of mistrust toward gain public support.
What need to be done.We acknowledge the current predicament is not just peculiar to us.But we are not shy of telling our self the truth.First, Nigerians are interested in a stabilize economy that should be far away from the broken economy situation.And this require a strong pro- people monetary and fiscal policies that have effect on the real economy.
Secondly, our interest rate should be adoptable alongside our macroeconomic development need. Tackling the energy, manufacturing and agriculturing sector.
Lastly, we are nation with democratic governance systems, the Nigerian state must factor the issues of intervention programmes beyond throwing money at problem.It time government takes these issues into account when making decisions. Especially has social unrest and the possibility of political risk is highly associated with high cost of living.
As late economist Sir Henry Boyo would say,”Let save the Nigerian economy”,from a broken one infact.
Adefolarin .A. Olamilekan
Political Economist and Development Researcher.
Email:[email protected]
Tel:08107407870,08073814436
