An Adjutant Professor of the North Dakota University, USA, Engr. Dr. Wisdom Patrick Enang, has enjoined the Central Bank of Nigeria (CBN) to devise other means of reducing inflation beyond raising the Monetary Policy Rate (MPR), in light of the steadily rising inflation in the country. The renowned Energy expert, who made this assertion recently in Uyo, Akwa Ibom state, informed that the apex bank has increased MPR four times this year, by a total of about 225 basis points, with little or no impact on inflation.
Dr. Enang, who noted that, there are other areas the government can consider to reduce inflation and make the Nigerian economy more efficient and productive, stressed that it is important for the CBN to look beyond the orthodox method of raising MPR or interest rates, as part of viable policy reforms that the Federal Government and the Central Bank of Nigeria (CBN) should urgently adopt, to reduce the inflationary trend and stabilize the Naira. He advised that there is an urgent need to increase real investments in infrastructure, and that the CBN should tinker its economic policies to reflect Nigeria’s peculiarities. He also suggested that the Federal Government should equally try to reduce economic leakages in the system due to corruption, since, at the end of the day the cost of governance has a direct impact on economic growth and the capacity of the government to invest in the nation’s economy.
While citing duplication of functions in Ministries, Departments and Agencies (MDAs), as one of the main factors leading to increased cost of governance and operational inefficiency, Dr. Enang equally lamented the constant rising cost of living which has surged in recent times, with no signs of slowing down. He harped on the increased cost of fuel due to subsidy removal, the high Naira-Dollar exchange rate, and the increasing costs of essential commodities and general living expenses, as noteworthy factors contributing to Nigeria’s inflation challenges.
According to him, “with an unacceptably high inflation rate of 24.08% based on the latest available official data, Nigeria has reached an inflection point where finding solutions is not just an imperative, but a matter of national emergency”. He maintained that, Nigeria has faced a series of inflationary shocks stemming from various factors such as the rise in the prices of goods and food supply caused by supply bottlenecks resulting from the COVID-19 pandemic; surge in the Naira-Dollar exchange rate; as well as conflicts and widespread insecurity in food-producing regions of the country, which has led to a reduction in the supply of agricultural products to the market. While forecasting that all economic indications point to inflation reaching 26% in the coming months, he argued that even at the forecasted Nigeria still compares favorably to other African countries like Ghana with an inflation rate of 43.1%, Egypt at 36.5%, and Ethiopia at 31%.
Dr. Enang further explained that Nigeria can reverse some of the inflationary pressures by using funds saved from the fuel subsidy removal to boost food production, subsidize manufacturing operations, and develop critical infrastructure to facilitate supply and trade. He also advised the federal government to direct significant attention to inactive sectors of the economy, with a view to sustainably revitalizing same. He advocated that monetary policy needs to be prudent and forward-looking, such that implementation actions can be calibrated to have the appropriate impact on inflation. According to Dr. Enang, one of such calibrations includes the deployment of supplementary measures by the Central Bank of Nigeria where inflationary pressures persist. Dr Enang acknowledged that, while the conventional tenets of central banking advocates for the continuous forceful adjustment of the policy rate over time to steer inflation back to the desired target, this must however be applied cautiously to avoid creating an unsustainable economic bubble. He equally advocated for a study by the CBN to contextualize the impact of previous rate hikes on the nation’s economy.
“MPR correlates strongly with the interest rates offered in the nation’s money market. Beyond a certain MPR, we risk creating an unsustainable financial bubble because, we will be promising investors financial returns in the money market, which Nigeria cannot sustainably offer, in light of the other factors negatively affecting the nation’s economy today, including: the high Naira-Dollar exchange rate; the exchange rate market volatility; steep decline in FDIs (Foreign Direct Investments); poor supply infrastructure; and poor electricity supply, the cost of which results in the prices of locally produced goods not being cost-competitive, compared to the cost of imported alternatives.”
“Additionally, a higher MPR, which also implies a higher bank lending rate, could threaten the survival of businesses which rely on bank loans to fund operational expenses. Also, a high interest money market prioritizes savings or passive investments, over active investments which are critically needed to grow the nation’s economy”.
To further buttress his point, Dr Enang cited that the Central Bank of some countries also currently facing inflation like Canada and Brazil have maintained an unchanged policy rate since 2022, opting instead to assiduously address other equally important factors exerting inflationary pressures on their nation’s economy.
On a broader perspective, Dr. Enang recommended that beyond MPR hikes, there are several reforms that the Central Bank of Nigeria and the Federal Government can also consider, including a comprehensive and adaptive approach that involves: fiscal policy coordination; supply side reforms; effective exchange rate management; targeted price control for essential commodities; and supply chain optimization. He also expressed optimism that the aforementioned measures can help Nigeria achieve an inflation rate of less than 15%, which would in turn create a more favorable atmosphere of price and exchange rate stability, both of which are critical for the nation’s sustained economic prosperity.