Adopt Alternatives to Interest Rate Hikes, Treasurers Urge Govt

As the global economy continues to face various challenges, treasurers and financial experts in Nigeria are advising the government to explore alternatives to the continuous hike in interest rates. This call comes in response to the Central Bank of Nigeria’s (CBN) recent decisions to raise interest rates as a means of combating inflation and stabilizing the naira. While these measures have garnered mixed reactions, financial stakeholders are urging the government to consider other strategies that could yield long-term economic benefits without putting undue pressure on the average Nigerian citizen and businesses.

The Impact of Rising Interest Rates

Over the past year, the CBN has implemented a series of interest rate hikes, citing inflationary pressures and the need to control the devaluation of the naira as key factors driving the policy. The Monetary Policy Rate (MPR) has been adjusted upwards in a bid to curb inflation, stabilize the exchange rate, and attract foreign investment. However, this approach has been met with growing concerns from key sectors, particularly those related to small and medium-sized enterprises (SMEs), which are the backbone of the Nigerian economy.

The primary concern is that increasing interest rates make borrowing more expensive for businesses and consumers, potentially slowing down economic activities. For SMEs, the high cost of financing is a significant obstacle, as it limits their ability to expand operations, hire more workers, or invest in technology and innovation. Similarly, households face higher costs for loans and mortgages, which affects consumer spending and overall demand.

In addition, treasurers argue that raising interest rates could lead to reduced private sector investments, as businesses become more cautious in taking on debt. While the policy may attract short-term capital inflows from foreign investors seeking higher returns, it could also discourage long-term investments that are crucial for sustainable economic growth.

### Seeking Alternative Solutions

Rather than relying solely on interest rate hikes, treasurers and financial experts are urging the government to adopt a more diversified approach to managing inflation and stimulating economic growth. Here are some of the alternatives being proposed:

1. **Monetary Policy Flexibility:** Financial experts suggest that the government should look into more flexible monetary policy tools that can address inflation without burdening businesses and consumers. This includes the use of targeted interventions such as open market operations and adjustments to reserve requirements for banks. By using these tools, the CBN can manage liquidity in the system without directly impacting interest rates.

2. **Strengthening the Naira through Diversification:** One of the key drivers of inflation in Nigeria is the volatility of the naira. Treasurers recommend that the government focus on diversifying the economy away from oil dependency. Investment in non-oil sectors such as agriculture, manufacturing, and technology would help to stabilize the naira and reduce the pressure on the foreign exchange market. This, in turn, could help reduce inflationary pressures without the need for drastic interest rate hikes.

3. **Fiscal Measures to Address Inflation:** Experts argue that fiscal policy should play a more prominent role in controlling inflation. By focusing on improving the supply of goods and services, the government can reduce the demand-pull factors driving inflation. This could include investing in infrastructure projects, supporting local industries, and providing incentives for domestic production. Additionally, reducing inefficient government spending could free up resources to be directed towards more productive sectors of the economy.

4. **Enhanced Credit Support for SMEs:** Another proposal is for the government and financial institutions to develop more favorable credit schemes for SMEs. Providing access to affordable credit at lower interest rates would encourage business growth and innovation, thereby boosting economic output. Financial institutions could be incentivized to offer favorable loan terms to businesses that are focused on production and job creation, as well as those in key growth sectors such as technology, agriculture, and manufacturing.

5. **Structural Reforms:** Long-term solutions to inflation and economic stagnation will require structural reforms aimed at improving the business climate, enhancing transparency, and reducing corruption. Treasurers argue that the government should prioritize reforms that make it easier to do business in Nigeria, including reducing bureaucratic bottlenecks, improving infrastructure, and implementing policies that support investment in human capital development.

6. **Strengthening the Capital Market:** An often-overlooked alternative is the development of the Nigerian capital market. Encouraging greater participation in the capital markets by both domestic and foreign investors can provide a reliable source of funding for businesses and the government. By creating more favorable conditions for investors and improving market liquidity, the government can attract long-term capital that supports productive activities in the economy.

### Balancing Inflation Control and Growth

While interest rate hikes remain a critical tool for central banks to manage inflation, treasurers in Nigeria are advocating for a balanced approach that takes into account the long-term impact on the economy. High interest rates, if maintained for extended periods, can stifle economic growth and lead to an increase in unemployment, as businesses struggle to access affordable financing. On the other hand, neglecting inflation could lead to eroded purchasing power, especially for the lower-income segments of the population.

Therefore, it is essential that the Nigerian government, in collaboration with the Central Bank, finds a sustainable path forward—one that balances inflation control with fostering economic growth. By considering alternative measures such as fiscal policies, structural reforms, and targeted interventions in key sectors, the government can help ensure that the country remains on a path toward economic prosperity.

### Conclusion

The call from treasurers to explore alternatives to interest rate hikes reflects the growing concern over the impact of these policies on businesses, consumers, and the overall economy. While interest rates play an important role in stabilizing the economy, there is a need for more targeted, long-term strategies to promote economic growth and reduce inflation. By diversifying the economy, supporting SMEs, and implementing structural reforms, the Nigerian government can create a more balanced and sustainable approach to economic development, ultimately benefiting all stakeholders in the long run.