Ola Akinwunmi
Nigeria’s high interest rate is having an unintended consequence: fueling inflation. According to Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, the Central Bank of Nigeria’s decision to hike the Monetary Policy Rate (MPR) last year has only worsened the country’s economic woes.
Oyedele argued that the MPR increase has pushed inflation up, rather than bringing it down. With businesses struggling to cope with exorbitant borrowing costs of 35-40%, they are forced to pass on these expenses to consumers through higher prices, thereby stoking inflation further.
The situation is exacerbated by Nigeria’s undervalued currency, with Oyedele emphasizing that the current exchange rate of N1,500/$ is not reflective of the naira’s true value.
He advocates for a focus on recovery and stabilization of the exchange rate, as well as enhanced transparency in foreign exchange markets.To combat inflation, Oyedele recommends shifting away from blanket MPR adjustments and towards policies that address the root causes of inflation, such as FX volatility, inefficient taxation systems, and lack of support for local production.
Despite the challenges, Oyedele remains optimistic about Nigeria’s economic future, predicting that inflationary pressures will ease in 2025 due to fewer external shocks. However, he stresses the need for fiscal discipline and transparency, particularly in government spending.