Hike in interest rate detrimental to Nigeria’s economy, won’t contain inflation, World Bank tells CBN

• .Many have also opined that Nigeria’s inflation is largely cost push and not demand pull, hence monetary policies measures taken by the CBN to check the trend must be firmly supported by sound and effective fiscal policies from the government

The crippling upward inflationary trend in Nigeria can’t be checked with high interest rate, the World Bank has told the Central Bank of Nigeria (CBN).

The global financial institution warned that the monetary policy tightening by the West African nation’s apex bank will not rein in the galloping inflation that has left the most populous black country grappling with its worst economic crisis in decades.

The World Bank, in its global economic prospects report released on Wednesday, stated that the continuous hike in interest rate is counterproductive and could further hamper Nigeria’s struggling economy.

It said one of the risks of Nigeria’s economic growth is the failure of tightening policies on inflation.

The tightening of the monetary policy rate (MPR) is the increase of interest rate to control soaring inflation.

Experts have warned that when interest rates are high, manufacturers, contractors, among others, find it difficult to borrow, and by implication, low productivity occasioned by job losses.

Many have also opined that Nigeria’s inflation is largely cost push and not demand pull, hence monetary policies measures taken by the CBN to check the trend must be firmly supported by sound and effective fiscal policies from the government.

Since the resumption of the Monetary Policy Committee (MPC) meeting this year, interest rates have increased from 22.75 per cent in February to 26.25 per cent in May – a total increase of 750 basis points.

‘Risks to Nigeria’s growth outlook are substantial’

The World Bank in its latest report noted that: “Risks to Nigeria’s growth outlook are substantial, including the possibility that the tightening of monetary policy stops short of reining in inflation.”

The report also predicted Nigeria’s economic growth rate outlook for the rest of 2024 and 2025 to remain the same. “Growth in Nigeria is projected to pick up to 3.3 per cent this year and 3.5 per cent in 2025,” the World Bank said.

“After the macroeconomic reforms’ initial shock, economic conditions are expected to gradually improve, resulting in sustained, but still-modest growth in the non-oil economy.

“In addition, the oil sector is expected to stabilise as production somewhat recovers”, it stressed