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Interest Rate May Surge Before Year-End, Amid Inflationary Pressure, Analysts Say

The Debt Management Office (DMO), projected that the total debt stock of Nigeria is likely to reach N45tn, after it revealed that the country’s total debt stock as of December 2021 was N39.55tn.

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Interest Rate

The Central Bank of Nigeria (CBN) may increase the Monetary Policy Rate (MPR) higher than the current 13 percent before the end of 2022, amid continued inflationary pressure occasioned by limited access to forex, and increasing debt crises, analysts have said. 

Africa’s largest economy faces an economic inflationary crisis, the major reason the CBN decided on Tuesday to raise the interest rate to 13 percent from 11.5 percent, TechEconomy reported.

Before the Monetary Policy Committee decided to increase the interest rate, the CBN had announced in February stop the sale of foreign exchange to Deposit Money Banks by December this year.

Limited Access to Forex

Accessing the dollar for legitimate purposes has been a lingering crisis in Nigeria. Nigerians who are involved in international transactions, such as paying for education; and business owners, such as importers have little or no access.

The current situation compels Nigerians to approach the black market, making Naira slide to over N600 per dollar, thus, eroding the purchasing power of many Nigerians.

Data obtained from the Central Bank of Nigeria showed that Nigerians spent at least $220.86 million on foreign education between December 2021 and February 2022.

In a letter titled ‘important notice’, seen by TechEconomy, Access Bank says it will need a 30-day period to fulfill requests for school fees, upkeep, and rent payments.

Personal Travel Allowance (PTA) and Business Travel Allowance (BTA) requests, it said, will take 14 days.

In contrast, TechEconomy gathered several reports revealing that politicians with unrestricted access to dollars have been on spending sprees to fund the forthcoming elections.

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In an interview monitored by TechEconomy on Classic FM, Peter Obi, Presidential aspirant of the Peoples Democratic Party (PDP) said “manufacturers are looking for dollars for spares, for inputs, for critical goods, but they can’t find it and we the politicians are sharing dollars.”

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“Let me tell you, one of the measures of any country’s economic stability is the currency. It is an abomination that somebody serving in government is spending another country’s currency, and I say it any day, If I’m president today, no government official would spend dollars, you go to jail. we have a currency.”

Increasing Debt Crises

The Federal Government has been heavily criticized for borrowing without any feasible commensurate infrastructural output.

President Buhari had in April written to the House of Representatives, informing the parliament that the deficit in the 2022 Appropriation Act had risen by N965.42bn to N7.35tn.

“Borrowing is not bad, what matters is what you are doing with when you borrow, Obi said. “Nigeria must desist from borrowing for consumption.”

The Debt Management Office (DMO), projected that the total debt stock of Nigeria is likely to reach N45tn, after it revealed that the country’s total debt stock as of December 2021 was N39.55tn.

Domestic debt stands at N23.7 trillion as of December 2021 from N20.21 trillion recorded in the previous year.

According to Ikemesit Effiong, Head of Research, SBM Intelligence, government borrowing costs, external and domestic, are sure to rise, and capital-intensive and interest-rate-sensitive sectors such as manufacturing and oil and gas will see a net rise in operating costs.

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“This factor may account for why the committee didn’t opt for a bigger price hike.”

Food Inflation

Although, many Nigerians believe the depreciating value of their local currency is responsible for food inflation. This also includes the high cost of transportation, lack of storage facilities, insecurity and other factors.

Security agencies in Nigeria are yet to find a lasting solution to the menace of insecurity across the country. Farmers and transporters are gripped with fear not to be attacked by bandits. This negatively affects the quantity of agricultural product at the market.

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The emergence of unknown gunmen in the Southeast part of the country coupled with sit -at-home will all have effects on food inflation.

Recent SBM Intelligence analyses have shown that market prices increased from October to December. Then it experienced a dip in February before rising again between February and March.

Price increases in recent times are attributed to fuel scarcity, insecurity situation, poor electricity supply, etc. It is expected that 19.4 million Nigerians will face famine by August 2022

Food inflation is currently 15.63 percent in December 2021, according to NBS.

Inevitable Inflation

Analysts say the combination of these several factors will create an economic situation that will give rise to inflation and eventually pressure the CBN to increase interest rates.

“The CBN will hold at its next meeting in July, but that rates will hit 14% by the end of the year if inflation continues to accelerate. said Abdulazeez Kuranga, Senior Analyst at Lagos-based Cordros Capital Ltd.

“Inflationary pressure will be increasing given the election spending,” said Abdulazeez Kuranga, Senior Analyst at Lagos-based Cordros Capital Ltd.

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“It is driving the demand for money in the domestic economy and causing inflationary pressure.”

Nigeria’s current inflation rate is 16.82 percent, according to the Consumer Price Index report, released in April 2022 by the National Bureau of Statistics (NBS).

On a month-on-month basis, inflation increased by 1.76% in April 2022, compared to 1.74% increase recorded in the previous month.

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Justice Okamgba functions as CONTENT STRATEGIST for TechEconomy.ng with penchant for content planning, development, analysis, management, and measurement. Contact: [email protected]

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