LCCI: Inflationary Pressure, Interest Rate Hike Overheating Economy, Undermining Industrial Productivity

Dike Onwuamaeze

In the face of continued tightening of the Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN), the Lagos Chamber of Commerce and Industry (LCCI) has cried out that the twin burden of high inflation and interest rate are overheating the economy and undermining industrial production, which could lead to job losses. 

The LCCI expressed these views yesterday, in reaction to the outcome of Tuesday’s Monetary Policy Committee (MPC) meeting, where it further raised the MPR, the benchmark interest rate by 150 basis points to 26.25 per cent from 24.75 per cent, in its sustained effort to bring fight inflation.

The CBN had raised interest rates by a total of 7.5 per cent since its maiden meeting in February as manufacturers continue to groan under high cost of funds. The MPR is the rate at which commercial banks borrow from the economy and often determines the cost of funds.

However, the LCCI warned that the attainment of the projected 3.37 per cent GDP growth might be elusive if the CBN continues to tighten its monetary policy.

Director General of the LCCI, Dr. Chinyere Almona, suggested that decisive and multifaceted actions were required to stabilise prices and enhance individuals’ purchasing power.

Almona said: “As inflation continues to rise despite the various interventions by monetary and fiscal authorities, we must take more decisive and multifaceted action to stabilise prices and support our citizens’ purchasing power.

“With several hikes in the past months, we are yet to record a significant impact on stabilising prices.”

She added: “The twin burden of high inflation and interest rates is overheating the economy and causing increased volatility and uncertainty.

“The private sector is once again thrown into more profound loan repayment crises as interest rates adjust to the new monetary policy rates.

“We are likely to see a reduction in demand as purchasing power weakens and this may lead to lower industrial production and loss of jobs eventually.”

The director general, however, acknowledged that curbing inflation and stabilising prices are not easy steps to take, especially at a period Nigeria was striving to attain reasonable growth that would create jobs and reduce the poverty level in Nigeria.

She also reiterated the chamber’s position, “on the need to implement targeted fiscal and monetary interventions that could boost food production, lower the cost of doing business, overhaul transport infrastructure, increase investment in innovative security architecture driven with technology, create a more enabling environment for the power and oil and gas sectors, and boosting non-oil exports.

“Specifically, the chamber had recommended that the CBN should apply an import duty exchange rate that is lower than the official rate at a fixed rate for a determined period.

“This is expected to help businesses to plan better and serves as a palliative that benefits a high proportion of the populace.

“Earlier in the year, we called on the government to implement specially targeted support for strategic industries.”

Almona also pointed out that the ongoing debate on a new minimum wage for Nigerian public workers would become a critical variable in the discourse about the next levels of government recurrent spending that might further fuel inflationary pressures into the second half of the year.

According to her, the government should begin to plan for the massive commitment of resources to implement the new minimum wage when the debates are over.

“This calls attention to reducing the cost of governance, eliminating duplicate functions in government agencies through mergers, and investing more in the deployment of technology to automate some government processes.

“Beyond the instrument of rate hikes to curb inflation, economic managers should consider non-cash interventions to reflate the economy without necessarily increasing the currency in circulation.

“If this tightness continues, we should not expect to achieve our growth projection of about 3.37 per cent this year,” she said.

The LCCI also said the government should seek more options to support industrial productivity, fight insecurity, invest more in infrastructure like power and transportation, deploy more technology for automation to ease the cost of doing business, and give a boost to non-oil exports to increase our foreign exchange earnings.

“By adopting these comprehensive measures, we can effectively curb inflation and foster a stable, resilient economy. It is essential to act swiftly and decisively, drawing on successful examples and tailoring them to our unique economic context,” LCCI said.