COST of funds for lending in Nigeria’s banking sector could rise as the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) today increased interest rate to 14 per cent.
The CBN Governor, Godwin Emefiele, said at the meeting that the committee would continue to increase the benchmark rate if it would tame rising inflation concerns.
Industry watchers say the increase would see higher cost of borrowing from banks, which could cause economic distress for businesses and workers who would need to borrow from the banks for their needs.
“Those who have borrowed from the banks most recently and haven’t concluded their repayment could see their rates reworked. We could see higher difficulties in the economy because prices of petroleum products are also rising and we expect further upticks on inflation,” an Associate Consultant to the British Department for International Development, (DFID), Celestine Okeke, told THE ICIR.
Another economic analyst, Chika Mbonu, also questioned the efficacy of the rate hike, stressing that the supply and the productive side of the economy must be addressed.
Mbonu said, “We could see banks sending letters to their debtors and modifying their cost of funds to reflect CBN’s rate hike.”
He stressed that if the government failed to address key issues on the economy like production, supply and infrastructural deficit, CBN may have addressed only one leg of the problem.
Notably, the MPC increased the official interest rate by 100 basis points (bpts), bringing the total increase to 250bpts within three months.
The committee had increased the Monetary Interest Rate (MPR) by 150 basis point in May 2022, from 11.5 per cent to 13 per cent.
At the end of its July 2022 meeting, the MPC again announced a further tightening of the rates by 100 basis points, to 14 per cent.
The apex bank explained it had held the official interest rate at 11.5 per cent for so long to pursue a place of price stability that would be conducive to growth.
However, the MPC left other monetary parameters constant around the MPR. That implies that the asymmetric corridor of +100/-700 basis points was retained, as was the Cash Reserve Ratio at 27.5 per cent, while Liquidity Ratio was also kept at 30 per cent.
The rise in interest rate in Nigeria is coming at a time officials of the European Central Bank (ECB) are discussing hike in interest rate on the back of rising inflation, stirred by the Russia-Ukraine war.
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.