THE private sector and bank debtors may have further been exposed to higher risks of manufacturing costs and loan repayment interests, with the Central Bank of Nigeria (CBN) raising, today, interest rate to 17.5 per cent.
The Monetary Policy Committee (MPC) of the CBN voted at its meeting to increase the benchmark interest rate by 100 points to 17.5 per cent. This was a 10 per cent increase from the previous 16.5 per cent hike fixed in November 2022.
This is the fifth time the CBN would be increasing the interest rate.
The CBN governor, Godwin Emefiele, announcing the new rate when reading the communique of the first MPC in the year, said previous increases were beginning to yield results with the slight drop in the inflation rate recorded in December 2022.
Emefiele stressed the need for the apex bank to keep tightening its fiscal policy.
Economists and industry watchers did not see the rate hike as a good development for the private sector, saying high lending rate would suffocate businesses.
“The hike in interest rate will hurt investors and the private sector, especially those in the real economy and enterpreneurs. As long as you are in production, and you borrow from the bank for your business, this hike in interest rate will hurt you, for it exposes your risk,” an economist and Executive Director, Centre for the Promotion of African Economies, Muda Yusuf, told The ICIR.
“This is a time businesses are going through various challenges in exchange rate, high cost of diesel, cost of transportation and insecurity. Hiking of rate is compounding their problems,” Yusuf said.
He disagreed with Emefiele on increasing lending rate as a strategy to curb inflation.
Another economist, Kelvin Emmanuel, said overlending to the Federal government through unregulated means was a major factor that fuelled the current hike in interest rate.
“Inflation has continued to accelerate because of this unregulated lending through ways and means to almost N23 trillion. Inflation is now taking its toll on lending rate. This will choke the private sector further and put them in more distress,” Emmanuel said.
The CBN also retained the Cash Reserve Ratio (amount of cash commercial banks are expected to keep in CBN’s vault) at 32.5 per cent, while the liquidity ratio was kept at 30 per cent.
The apex bank had increased the MPR from 11.5 per cent earlier last year to 16.5 per cent across four consecutive rate hikes in 2022.
Emefiele said the committee took the decisions to rein in inflation.
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.