THE Nigeria Employers’ Consultative Association (NECA) has decried a further hike in the interest rates, by the Central Bank of Nigeria (CBN), insisting frequent hikes in policy rate will continue to hurt investment decisions in the private sector.
The association made this position known in a statement, issued by its Director General, Mr. Adewale- Smart Oyerinde, in Lagos, on Tuesday.
The association noted that the cost of borrowing for investment by organized businesses had increased since March 2024 when the Policy rate was raised to 24.75%, arguing that the new policy rate of 26.25% will further affect private investment negatively.
It stated that it was implausible to continue to control the current high inflation by continuously raising interest rate.
According to NECA, implementing tight monetary policy stance, when firms’ investment expenditure and household consumption is at the lowest ebb, may further incapacitate production and capacity utilization in the already challenged private sector.
It noted that given the triadic nature of relationship among interest rate, inflation rate and exchange rate, it would be most improbable to address inflation crisis by elevating Policy rate, since exchange rate, he argued, has continued to degenerate.
” The persistent high depreciation in the value of Naira will continue to feed inflation, while constraining firms investment and household consumption. Consequently, raising policy rate will further exacerbate inflationary pressure as growths in factor costs and commodity prices become unbounded,” the association stated.
NECA attributed the defying inflationary pressure to the liberalization of FX in the country, despite the economy being heavily import dependent.
While calling on the government to reconsider the Guided FX floating regime, which is a dynamic and flexible FX management regime, the association added that prior to the total floating of FX regime, the economy was better-off with inflation anchoring below 20% mark
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