High Interest Rates may Backfire: Reps warns CBN of Economic Consequences

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The House of Representatives Committee on National Planning and Economic Development has cautioned the Central Bank of Nigeria (CBN) about the potential unintended consequences of maintaining high interest rates in its fight against inflation. The warning was issued by the Committee Chairman, Rep. Gboyega Nasiru, during an interactive session with the Statistician-General of the Federation and Chief Executive Officer of the National Bureau of Statistics (NBS), Mr. Adeyemi Adeniran, in Abuja.

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Nasiru stated, “The Monetary Policy Rate (MPR) has been raised 10 times since January 2023, currently standing at 27.5 percent—up from 16.5 percent in 2023—in a bid to tackle demand-pull inflation.” However, he noted that the effectiveness of this policy has been undermined by structural bottlenecks and supply chain inefficiencies.

The lawmaker expressed concern that the current tight monetary stance could stifle key productive sectors of the economy, particularly the manufacturing, agriculture, and small and medium enterprise (SME) sectors, which are crucial for job creation. He said, “It is therefore our view that, given the current economic landscape, the monetary authorities—at their meeting next week—should consider a more accommodative stance that supports both growth and employment.”

Nasiru acknowledged the progress made by the President Bola Tinubu administration’s market-driven reforms, which have stabilised the macroeconomic environment, restored investor confidence, and boosted market indicators. He highlighted that the capital market has surged by nearly 100% over the past two years, and the CBN recorded its highest external reserves in over three years.

The CBN’s financial performance has also improved, with a profit of N38.8 billion in its latest financials, a significant turnaround from the N1.15 trillion loss reported in 2023. However, Nasiru warned that high interest rates are negatively affecting key sectors of the economy.

Adeniran presented the latest unemployment data, reporting a rate of 4.3% in the second quarter of 2024, down from 5.3% in the previous quarter. He noted that unemployment was higher among females (5.1%) than males (3.4%) and more prevalent in urban areas (5.2%) compared to rural areas (2.8%). The Statistician-General also disclosed that young people face a relatively higher unemployment rate of 6.5%, while 12.5% of youth are not in employment, education, or training (NEET).

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