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Interest Rate Hike to 22.75%: Recession and Job Losses Predicted

The Central Bank of Nigeria (CBN) has raised its benchmark interest rate by 400 basis points to a record high of 22.75%, sparking fears of an economic recession and increased unemployment.

The Monetary Policy Committee (MPC) voted unanimously to increase the monetary policy rate (MPR) from 18.75% in an effort to curb rising inflation, currently at 29.9%.

In addition to the MPR hike, the MPC also increased the cash reserve ratio (CRR) for banks to 45% from 32.5% and maintained the liquidity ratio at 30%. These moves are expected to restrict the money supply in circulation.

CBN Governor Olayemi Cardoso stated that the decisions were necessary to combat persistent inflationary and exchange rate pressures. However, private sector experts and economists warn the aggressive rate hikes could trigger a recession and fresh job losses instead.

Reacting to the news, manufacturers and businesses dependent on commercial bank loans are bracing for significantly higher borrowing costs. This could negatively impact productivity, output, and employment in the real economy.

Economists like Paul Alaje and Uche Uwaleke argued that while the rate hikes may reduce inflation gradually, they fail to address underlying structural and cost-push inflation drivers like high food and energy prices. Others, like Sheriffdeen Tella, questioned whether inflation is primarily a monetary phenomenon in Nigeria’s case.

The private sector urged the CBN to balance inflation management with supporting economic growth and job creation. However, Governor Cardoso insisted the rate hikes were necessary to restore confidence and rebuild the economy on a sustainable footing.

The true impact on inflation, growth, and employment remains uncertain. With recession fears mounting, all eyes are on the CBN to carefully calibrate monetary policy over the coming months.

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