CBN regrets declining economic activities despite hiking lending rate

DESPITE increasing the lending rate to 24.75 per cent, the Central Bank of Nigeria (CBN) has admitted regrets over the country’s declining economic activities.

The lending rate is currently at 24.75 per cent, which makes it difficult for small and medium enterprise businesses to borrow from commercial banks due largely to the ‘cost of funds’ (interest rates put on money borrowed from commercial banks).

The CBN deputy governor of Corporate Services, Bala Bello, disclosed this in a statement published on the bank’s website on Friday.


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He noted that the country’s Composite Purchasing Managers’ Index declined sharply to 39.2 index points in February 2024 from 48.5 index points in the previous month.

According to Bello, economic activity has contracted for eight months due to exchange rate pressures, inflation, and security challenges.

“Economic activity has been contracting for eight consecutive months, mainly due to exchange rate pressures, rising input prices, security challenges, and other idiosyncratic headwinds. This calls for well-nuanced policy decisions targeted at price stability to forestall stifling economic activities and derailing output performance,” he said.

He noted that the apex bank was concerned over rising inflationary trends despite sustained hikes in the monetary policy rate, with forecasts of further price increases in the near term.

“Both food and core inflation rose in February 2024, underpinning an acceleration in headline inflation to 31.70 per cent in February 2024 from 29.90 per cent in the previous month.

“This continued rise in inflation was mainly due to high production costs, lingering security challenges, and exchange rate pressures,” he said.

He added that the country’s inflation soared to 33.22 per cent in March, which he noted was unacceptable and required coordinated efforts to curb it.

He explained further that inflation was unacceptably high and required decisive and coordinated efforts to curb it, given its adverse impact on citizens’ purchasing power, investment decisions and broad output performance.




     

     

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    “The Federal Government’s initiatives addressing food insecurity, such as releasing grains from the strategic reserves, distributing seeds and fertilizers, and supporting dry season farming, are important and commendable,” he added.

    Recall that the MPC raised the country’s interest rate to 24.75 per cent in March.

    Conversely, economy watchers say interest rate hikes are not enough to drive down inflation since commercial banks are not lending to businesses because of double-digit inflation at 33.22 per cent.

    “Hiking of the interest rate is not the solution to declining economic activities. You could notice that banks are not lending much now to businesses, and most businesses are afraid to borrow from bank because of high interest rate. The government must look at the fiscal policy tool to support whatever monetary efforts are being employed by the CBN,” former Director-General of the Lagos Chamber of Commerce, Muda Yusuf told The ICIR.

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    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.

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