In fact, the use of policy rate increases is leading to an increase in deposit and lending rates without the compensating desired reduction in the inflation rate. The current inflation in Nigeria is more of ‘supply driven’ inflation than a ‘demand driven’ one. The current low level of consumer credit in Nigeria weakens the relationship between aggregate consumption expenditure level and interest rate. To combat rising inflation in such a situation, increasing the interest rate is not the right choice. To satisfy domestic consumption demand owing to low domestic production capacity, imports of foreign goods will fill the gap.

Source: Nigerian Tribune February 22, 2024 15:34 UTC