Experts task CBN on local solutions to reduce inflation rate

The two experts, Mrs Lolade Adesola with L.A. Consult and Mr Tunji Adepeju, spoke in separate interviews with our reporter in Ibadan on Thursday.

Adesola said the policy was to reduce excess liquidity in the economy, because CBN believed that it was what has been driving inflation.

She said that the policy might not work in the country because, adding “the situation is what is called ‘Stagflation’; this is because we don’t have the economic growth along with the inflation.

“Now that the interest rate has been increased and makes the cost of borrowing so high, it will make it really difficult for small businesses to borrow for production; again, this will lead to stagflation in economic growth.

“The approach is a textbook solution to inflation.

“I don’t really know if that would work because we don’t have ordinary inflation in Nigeria, but stagflation,” Adesola said.

She said that the way forward would be to continue to have intervention funds; bring in cheaper loans for targeted sectors of the economy.

“If those ones continue to borrow cheaply, maybe it will work.

“But, if we just do a blanket increase in the interest rate across all sectors, it may actually compound our problems,” Adesola said.

Contributing, Mr Tunji Adepeju, a Financial Consultant, said the rationale behind the increase was best known to the committee on MPR.

Adepeju said that the present economic hardship was a global issue.

According to him, this solution is similar to what the United Kingdom Government did. But to the ordinary man, I think this is a wrong step.

“There is no way you will increase the interest rate and it would lead to more inflation.

“We started from 11 per cent. It moved to 14 per cent in July and now 15.5 per cent, because it couldn’t achieve what they wanted it to achieve.

“The MPR rate will still increase by their next meeting.

“Inflation is an increase in prices of goods and services. For businesses, an additional charge on the loan rate will be added to the cost of production which will drive prices of goods and services up,” Adepeju said.

He said inflation in the country was cost push and not demand-driven, adding that the cost of inputs, diesel, transportation and other materials used in production have the culminating effects on the selling price.

Adepeju said that as the cost of electricity, diesel and transportation continue to go up, inflation would continue to rise.

He urged members of the MPR committee to use real life situations as their consideration in any policy, instead of statistics that do not show the economic reality of Nigerians in the open market.

The expert also said that an increase in banks Cash Reserves Ratio (CRR) would also affect deposit money banks, whose investments failed in oil and gas, electricity and other things.