New CBN Interest Rate Hike Will Worsen Economic Hardship, Job Losses

Peter Obi, former governor of Anambra State, believes that the Central Bank of Nigeria’s (CBN) increase in the Monetary Policy Rate (MPR) will exacerbate the country’s economic hardship.

According to the Conclave, the CBN increased the MPR by 400 basis points, from 18.75% to 22.75%.

CBN Governor Yemi Cardoso, who chairs the Monetary Policy Committee (MPC), announced the committee’s decisions in Abuja on Tuesday, February 27, 2024.

However, Obi, in a statement posted on his X (formerly Twitter) account on Thursday, February 29, described the increase as counterproductive, claiming it would result in more job losses in the country.

The Labour Party’s (LP) presidential candidate for the 2023 election stated, “Let me confess that being a vintage Onitsha-based trader does not confer on me the status of an economic expert.

“With my vast trading knowledge and my involvement in the real sector, I am of the strong opinion that the recent decision of the Monetary Policy Committee to increase the Monetary Policy Rate, MPR, to 22.5% and the Cash Reserve Ratio, CRR, to 45% will further worsen the economic situation of most Nigerian households, as it is bound to cause more job losses in the productive sector, especially manufacturing and other sectors that rely on bank loans and credit facilities.

“Limiting liquidity in the financial system does not improve productivity, i.e. food production, which is the primary cause of inflation in Nigeria.

Furthermore, only about 12% of the total money in circulation is in the banking system, leaving the remaining 88%, or about N3.2 trillion, outside the banking system.

“So, this measure would be counterproductive because it does not address the intended goal of managing the money supply.

“These new measures will worsen the fragile economy because the supply of funds for the real sector will dry up, and the new MPR rate hike will push loan interest rates above 30%, making it very difficult for real sector operators, particularly manufacturers and SMEs, to repay; resulting, obviously, in increased bad loans and worsening the nation’s economic situation.”

The former governor stated that the most important way for Nigeria’s government to manage the country’s high inflation rate and decline in production is to address insecurity.

Obi stated that the government’s response to insecurity would allow for increased food, crude oil production, and overall production, resulting in cheaper products, particularly food.

Obi added, “This way, we would increase our productivity while also restoring FDI and FPI confidence in the country.

“I must warn that what the Nigerian economy requires right now is hard-headed practical innovation and outcomes. Tinkering with classical economic theories will only exacerbate our crisis.”