Economist warns high interest rates undermining benefits of easing inflation

An Economist, Dr Alarudeen Aminu, has warned that persistently high interest rates on loans could erode the benefits of Nigeria’s recent reduction in inflation, particularly for producers and small businesses.

Aminu, a Reader (Associate Professor) in the Department of Economics, University of Ibadan, said this in an interview with our correspondent on Tuesday, while reacting to indications of easing inflationary pressures in the economy.

He noted that though Nigeria was beginning to record a moderation in inflation, the high cost of borrowing remained a major constraint to productive activities, especially in agriculture and manufacturing.

“Interest rates are just too high, and when producers take loans at such rates, they must recover their costs. Eventually, this reflects in higher prices of goods and services,” Aminu said.

According to him, the situation poses a risk to sustaining recent gains in inflation reduction, as producers are discouraged from expanding output due to expensive credit.

The economist explained that affordable financing was critical to increasing domestic production, which remained central to addressing inflation in Nigeria.

He stressed that food inflation, in particular, accounted for almost 50 per cent of the country’s overall inflation, making access to low-interest loans for farmers and agro-processors essential.

“If you can solve the problem of food production, you have addressed more than half of Nigeria’s inflation problem,” Aminu said.

He urged the government to review interest rate policies for loans targeted at productive sectors, especially food production for domestic consumption and export.

Aminu, who is also of the Nigerian Economic Society (NES), called for sustained subsidies in strategic areas such as agriculture, energy and power.

He noted that high energy costs further compounded production expenses and weakened the impact of easing inflation.

He added that without deliberate intervention to lower borrowing costs, the recent reduction in inflation might not translate into improved purchasing power for ordinary Nigerians.