Reactions as CBN raises interest rate to 17.5%

 

Mixed reactions have continued to trail the Central Bank of Nigeria’s decision to increase the Monetary Policy Rate (MPR) benchmark, also known as the interest rate, from 16.6 per cent to 17.5 per cent to tackle inflation.

Recall that the Governor of CBN, Godwin Emefiele, in a communique on Tuesday, after the banks’ Monetary Policy Meeting announced a hike in MPR.

The latest increase in the MPR represents the highest rate in over 21 years, since 2001 when the benchmark interest rate averaged 20.5 per cent.

Also, this represents the fifth consecutive increment in the monetary policy rate in the period under review.

However, financial experts have expressed divergent views over the latest decision by the apex bank to hike interest rates despite the prevailing economic woes facing Nigeria’s economy.

CBN should strategise alternatives to reduce inflation – DG NACCIMA

Reacting to the interest rate hike, the Director General of the Nigerian Association of Chambers of Commerce, Industry, Mine and Agriculture (NACCIMA), Sola Obadimu, enumerated the consequences of the increase.

“Money is a critical input in the cost of production. When commercial banks take loans from CBN, it’s assumed that they are buying money, and the interest rate is the cost of funds.

“Money is a fiscal input in the production or service industry. Central banks typically raise interest rates to control inflation. It increased consecutively four times last year. Yes, but it didn’t help to achieve a reduction in inflation. Usually, it doesn’t work most of the time because it’s a reactive measure.

“What they have done now is raise the interest rate of their loans to commercial banks. Commercial banks, in turn, will increase the interest they lend to customers above the 17.5 interest rate.

“Now the interest rate for customers of commercial banks will get higher than what is previously obtainable. If they loan to businesses at 20 per cent and add administrative charges and other charges, the interest rate will likely increase to 25 per cent.

“This will naturally increase inflation because it will drastically affect production, and there’s no way any enterprise will sell below production cost.

“CBN is hoping it will help to dwindle the inflation rate, but on the contrary, it always almost leads to inflation.

“NACCIMA is concerned about this, and we hope the committee will look beyond this singular strategy. They should look at alternatives to bring down inflation as this strategy doesn’t seem to give any positive result.”

Interest rate hike will hurt productive sector, Nigeria’s economy — Gbolade

A financial expert, Mr Idakolo Gbolade, said the CBN’s interest rate hike would hurt the productive sector and Nigeria’s economy.

He stated the bank’s decision to increase the interest rate in the past had not yielded any results.

“The MPC believes that consistent increases in the interest rate caused the slight easing of the inflation rate in December 2022 and that further increases will stem inflation in January and after that.

“However, the reality on the ground has shown that continuous increases in interest rate will stifle the productive sector and cause a default on loan facilities repayment due to factors like an insufficient supply of energy.

“Also, insecurity and high production cost have affected most companies’ profitability. This interest rate hike would also limit the capacity of the industrial sector to take more loans for expansion.

“The economy is already challenged in 2023 due to election anxiety and possible inactivity of the incoming government to save the economy through the year. The CBN’s increased rates will further hurt the economy in 2023,” he said.

Hike in MPR will hurt investors in the real economy — CPPE

Reacting to the development, in a chat with Nigerian NewsDirect on Tuesday, the Chief Executive Officer of Centre for the Promotion of Private Enterprise, CPPE, Dr Muda Yusuf, said CBN’s hike in MPR from 16.6 per cent to 17.5 per cent would hurt investors in the real economy.

He said the implication is that lending rates will increase for investors indebted to the banks.

The hike would further imply an increase in operating and production costs.

The hike would ultimately impact adversely on economic growth. Challenges to access and cost of credit by small businesses would be further elevated.

Muda said, “The Monetary Policy tightening has a minimal impact on inflation. This is not a credit-driven economy. Consumer credit is not on a scale to be reckoned with.

“Key drivers of inflation are Exchange rate depreciation, foreign exchange market illiquidity, insecurity, high energy cost, especially diesel cost, climate change and the massive injection of liquidity into the economy through the controversial ways and means of financing.

“Most of these factors are not within the purview of the CBN.

“On the Currency exchange, it is evident that CBN has serious production and logistics limitations regarding the new currency notes.

The most realistic option is to extend the deadline. Otherwise, there will be severe business disruptions, especially within the SME space, the informal sector and the rural economy. Many innocent Nigerians will lose their hard-earned money,” he said.

CBN should reconsider its stance on formulating anti-people policies – Prof Godwin Oyedokun

Also, an Accounting and Financial Development don at Lead City University, Ibadan, Prof Godwin Oyedokun, said CBN should reconsider its stance on formulating anti-people policies.

“I think there is more to CBN’s behaviour recently. I don’t understand why some people just sit down somewhere and keep formulating policies that are anti-people.

“The issue of naira redesign, inflation, and other challenges are there, yet the CBN is still jacking up the interest rate.

“It is high time for the CBN to be more reasonable about policies. If the interest rate is escalated, as is the case now, it means the cost of funding will be high, which will be passed on to consumers, increasing the prices of goods and services.

“However, what the CBN is doing is to increase the interest rate to fight inflation”, he stated.