BANK debtors and businesses are to pay higher interest rate henceforth, as the
Central Bank of Nigeria (CBN) has raised the monetary policy rate to 27.50 per cent from 27.25 per cent.
This followed the meeting of the Monetary Policy Committee (MPC) in Abuja.
The CBN governor, Yemi Cardoso, announced this in Abuja on Tuesday, November 26, during the last MPC meeting of the year at the apex bank’s headquarters.
Cardoso said the MPC voted unanimously to raise the MPR by 25 basis points from 27.25 per cent to 27.50 per cent; and retain the cash reserve ratio (CRR) at 50 per cent for deposit money banks and 16 per cent for merchant banks.
The CBN chief also said the MPC retained the liquidity ratio (LR) at 30 per cent and asymmetric corridor at +500/-100 basis points around the MPR.
Implications for businesses
Economic watchers said the impact would deal a blow on businesses who seek to borrow to expand their businesses as there’s weak hedging from higher interest rate from the current CBN rate hike.
“Lots of banks and credit agencies will be repricing their loans now and it will affect negatively those who are indebted to banks and those who seek to borrow and expand their businesses, “the sub-Saharan senior economist at Vetiva Capital Management Limited, Ibukun Omoyeni, said in reaction to the rate hike by CBN.
He stressed that firms who have their loans priced in dollar and other foreign denominated policies could experience further economic squeeze with the current rate hike by the CBN.
“The man in the street will pay higher for his services since the SMEs will pay higher interest rate for funds. Costs of funds will be up till next year as the currency volatility continues to take its toll on businesses and the overall economy.
On fixed income market, he said, “Interest rate will stay at the current level on the market. The rate will also attract more foreign investments as the naira continues depreciating which favours foreign investors.”
The chief economist, Coronation Merchant Bank, Chinwe Egwim, who spoke on the impact of the development on the economy, feared it would increase borrowing costs.
She noted that high energy prices should be expected, advising that small scale businesses would have to sustain cost management posture to enable them be in business.
The economist said, “SMEs should adopt innovative changes at this time and expand their investment portfolio to enable them generate additional income.”
On the global scale, she noted that the international capital market would remain expensive for Nigeria considering its high appetite for borrowing, and considering the rate hikes by European central banks and other global lenders.
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.