BUSINESSES and manufacturers would have to borrow funds at a higher interest rate for their operations as the Central Bank of Nigeria’s (CBN) monetary policy committee (MPC) has hiked the interest rate to 26.75 per cent.
The rate hike was announced on Tuesday, July 23, by the Governor of CBN, Olayemi Cardoso, at the end of the 296th meeting held in Abuja.
The MPC meeting had maintained a hawkish stance amid soaring inflation at 34.19 per cent which pressures businesses and increases their borrowing costs from commercial banks.
The rate was raised from 26.25 per cent announced at the previous MPC meeting in May.
Apart from the rise in the monetary policy rate (MPR) rate by 50 basis points to 26.75 per cent, the committee announced the adjustment of the asymmetric corridor from +100/-300 to +500/-100 around the MPR.
The committee also retained the cash reserve ratio of commercial banks at 45.00 per cent while the liquidity ratio was retained at 30.00 per cent.
Cardoso said the MPC was mindful of the effect of the rising inflation on household consumption and purchasing power of Nigerians, but noted efforts were on top gear to put inflation under control.
He said the inflation surge was expected to moderate as monetary policy measures were being taken in addition to recent fiscal incentives on duty importation directives of the federal government to address food inflation.
“The committee noted a persistent rise in food inflation, which continues to undermine price stability,” he said.
“Rising food and energy costs continue to sustain upward pressure in price moderation. The prevailing insecurity in food-producing areas and high cost of transportation in farm produce are also contributing to the inflation trend,” he added.
In its last three meetings since January, the apex bank tightened the benchmark interest rate to control the rising inflation figures driven by key factors including a loss in the value of the naira.
Headline inflation surged to 34.19 per cent in June and food inflation, the major driver of the pressure, to 40.87 per cent.
Commenting on the rate hike, Partner, Head of Africa Tax, KPMG Wale Ajayi, said the federal government needed to pay closer attention to Nigeria’s dwindling oil production to grow support for the foreign exchange market.
“We are not meeting up with our Organisation of Oil Producing Countries (OPEC) quota and it’s not good for our foreign exchange market and budget funding. We have 1.7 million barrels per day in the budget and we are not doing up to 1.5 million barrels per day production, ” he said.
He suggested proper alignment of monetary and fiscal policies, to lessen the sufferings of the people and grow the manufacturing sector.
Meanwhile, the organised private sector had called on the CBN to exercise caution in further raising benchmark interest rates.
The chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf, said the hike in monetary rates had been overstretched with a greater burden on businesses and the manufacturing sector.
Also, the National President of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA), Dele Oye, said a hike in the benchmark interest rate could have several potential consequences for businesses.
According to Oye, loans and lines of credit will become more expensive, which can increase the cost of financing for businesses, leading to higher operational costs.
He added that as borrowing becomes more expensive, businesses might delay or scale back on investments in expansion, new projects, or capital improvements, adding that the development could slow down business growth and innovation.
