The Lagos Chamber of Commerce and Industry (LCCI) has stressed the need for a corresponding boost to supply side factors of inflation to accompany the monetary policy instruments by the Central Bank of Nigeria (CBN) to tackle inflation.
Dr Chinyere Almona, the Director-General, LCCI, on Wednesday, in Lagos, gave the advice in reaction to the decisions of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN).
At the meeting, the Monetary Policy Rate (MPR), was raised from 13 to 14 per cent in response to the surging inflation rate of 18.60 per cent of June.
The CBN retained the asymmetric corridor of the MPR at +100 / -700 basis point, the Cash Reserve Ratio (CRR) at 27.5 per cent and liquidity ratio at 30 per cent.
Almona said that monetary policy instrument such as rate hike alone would not yield the desired result of lowering inflation.
She said that supply side factors like foreign exchange scarcity, insecurity, rising costs of fuels and weak infrastructural support for production must be addressed.
Almona, however, posited that CBN rate hike was seen to be a necessary option considering that many other economies were raising rates for the same reason of taming inflation.
According to her, a comparatively low interest rate could make the country’s portfolio assets less attractive to asset buyers and offshore investors.
This, she said, could make the economy suffer from massive capital flight with a negative effect on the exchange rate.
“We note the gloomy outlook of the global economy which has a direct link to our domestic economy with pass through effects of imports.
“The persistent war in Ukraine and other disruptive factors may present as risks into the end of the year.
“Tightening of rates may have been a good decision by the MPC as that was necessary to tame the rising inflation rates in the past months,” she said.
Almona urged the CBN to maintain its targeted intervention schemes for agriculture, manufacturing/industries, energy, infrastructure, healthcare, exports, and Micro, Small, Medium Enterprises (MSME).
She stressed that development finance loans should be targeted at the MSMEs.
“Beyond the goal of stabilising prices, there are other key goals besides this; full employment, economic growth, and balance of payment equilibrium are equally important.
“While it is expedient to curb inflation rates, we equally risk a contracted economy that may go toward a recession. “This calls for the need to embark on targeted financing for critical sectors of the economy to help boost the supply-side,” she said.