Further interest rate hike not good for economy — Comercio Partners

Comercio Partners Limited, an investment banking firm has cautioned against further interest rate hike by the Central Bank of Nigeria, CBN, saying such a move is not good for the economy.

Giving this warning at the media launching of the Comercio Partners Macroeconomic Outlook for 2024, with the theme, “Finding Rain in Drought”, Head of Research,   Dr. Ifeanyi Ubah, said “I think the interest rate (Monetary Policy Rate, MPR) is already high and what we need to do is to emphase that the transition mechanisms are right so that we can feel the impact of the high interest rate we already have.

“If you do a correlation analysis between interest rate and inflation for Nigeria, we don’t see a relationship such that as you increase interest rates, there will be reduced inflation. Rather we see a positive correlation.  

“This is unlike what obtains in other countries. If you look at the data on  interest rate and inflation for Nigeria   from 1960 till date and run a regression analysis you will see that they are positively correlated.

“So if we are going   by the data, increasing the interest rate will negatively affect the economy because you are going to increase misery and increase hardship considering the fact that our inflation is not credit driven. If it was credit driven, we will say it has a direct impact. But   we have more supply shocks and imported inflation.”

On the outlook for the foreign exchange market, Dr. Ubah,   said: “From what we are seeing from the CBN and the parallel market, we feel that the Naira might consolidate around the N1,500/$ region for the next couple of months. This is because we have noticed an increased in participation in the NAFEM window. And the NAFEM window is now showing a true reflection of how market participants feel. After monitoring the NAFEM window carefully, the lowest and higher bid rates and how market closed; the NAFEM window is now showing that it is not far from market anticipation in terms of the black market rate.

“So these liberalisation policies will make the Naira hover around the N1,500/$ to N1,600/$ for the next six months barring any other circumstances.”

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