The Central Bank of Nigeria, CBN, has sparked an out rage in the business sector following its decision to raise the benchmark interest rate to 26.75 percent, 50 points basic point from its May figure.
The MPR or interest rate is the basic lending rate in the country, lending or financial institutions charges as high as 40 percent interest rate on loans, according to experts, who said the continuous hike in the rate will further discourage investment.
The Yemi Cardoso-led CBN announced during its monetary Policy Committee Meeting, MPC, on Tuesday that it needed to push back on inflation by hiking the interest rate.
The apex bank has raised the rate five times since the beginning of the year.
The latest hike, Cardoso state was necessary to urgently bring inflation under control.
He said: “The Committee was mindful of the effect of rising prices on households and businesses and expressed its resolve to take necessary measures to bring inflation under control. It re-emphasized its commitment to the Bank’s price stability mandate and remained optimistic that despite the June 2024 uptick in headline inflation, prices are expected to moderate in the near term.
“This is hinged on monetary policy gaining further traction, in addition to recent measures by the fiscal authority to address food inflation
Last month, the MPC raised the rate by 100 percent with the expectation that inflation will be tamed. That has not happened, according to experts who said, the CBN has failed to attack the high cost of goods and services in the country with the right instrument.
According to the National Bureau of Statistics, NBS, the headline inflation now stands at over 36 percent, with no end in sight to the rising cost of basic essentials in the country.
Rather than hiking the interest rate, what should be done by the government, according to Johnson Chukwu, the Managing Director, Cowry Asset management is to grant more credit to Nigerians to enhance their purchasing power.
Chukwu said the current inflation is driven by shortage of supply, rather than demand, as being suggested by the CBN as reason for consistently hiking the interest rate.
Also, Muda Yusuf, a former president of the Nigerian Chamber of Commerce, said the continous hiking of interest rate is not preferable considering the current economic challenges.
Yusuf in a statement on Tuesday said the 50 points moderate increase for the month is tolerable, uring the CBN to stop any incrase forthwith.
He said the CBN listened to the fedback from the business community that any hike beyond the current threashhold will be unacceptable.
“The marginal increase marks a softening of the tightening stance. It is tolerable,” Yusuf said.
Reacting, National President of Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, NACCIMA, Dele Oye, said the increase will put more pressure on businesses in the country, adding that accessing loan has become more difficult with the decision.
He said: “A hike in the benchmark interest rate (MPR) by CBN can have several potential consequences for businesses, including: Increased Borrowing Costs – Higher interest rates mean that loans and lines of credit become more expensive, which can increase the cost of financing for businesses, leading to higher operational costs; Reduced Investment – As borrowing becomes more expensive, businesses may delay or scale back on investments in expansion, new projects, or capital improvements and this can slow down business growth and innovation; and Decreased Consumer Spending – Higher interest rates can lead to increased borrowing costs for consumers as well, which can reduce their disposable income, which typically results in lower consumer spending, which can negatively impact businesses, particularly those in the retail and service sectors.
Africa’s Richest Man Aliko Dangote had following last month’s hike in the rate by the CBN, slammed the Cardoso-led apex bank, arguing that the decision will hurt businesses in the country.
“Nobody can create jobs with an interest rate of 30 per cent. No growth will happen,” the Chairman of Dangote Group said.
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