Low Interest Rate Could Lead to Inflation—CBN

By Dipo Olowookere

Though some have called for the lowering of the nation’s benchmark interest rate presently at 14 percent, others feel making such move at the moment could be counter-productive.

One of such people is the Director in charge of Policy at the Central Bank of Nigeria (CBN), Mr Moses Tule, who is of the view that a lower interest rate could bring about inflation crisis in the country.

Nigeria went into a recession in the second quarter of 2016 as a result of very low price of crude oil at the international market. The commodity remains Nigeria’s major export and the drop in the price affected the nation’s economy, resulting in sharp fall in revenue.

But in the second quarter of 2017, the Africa’s largest market exited recession as a result of efforts made by government to diversify the economy.

When the country was battling with the economic crisis, many analysts, including the Minister of Finance, Mrs Kemi Adeosun, called for downward review of the interest rate, but the CBN Governor, Mr Godwin Emefiele, had maintained then that lowering the rate could spell doom for the country.

Speaking with newsmen in Abuja on Friday at the Maiden Colloquium of Prof Uche Uwaleke, Mr Tule noted that the downward review of the benchmark rate could lead to higher demand, leading to inflation which would bring about calls for wage increase in both public and private sectors, with various consequences for the economy.

The CBN Director argued that, “When you reduce MPR, of course, the way the fundamentals are today, you are going to have the impact of that in other ways; which means the demand is going to be higher on the government to increase wages because inflation will erode the living wage.”

According to him, “There will be demand on the government, and every other person in the private sector will demand for wage increase.

“That’s the choice. We have to choose between having to improve infrastructure and interest rate will come down overtime and the whole economy will benefit or reduce interest rate now and then worsen inflation.”