THE Central Bank of Nigeria’s recent hike of its monetary policy rate (MPR) to 13 per cent has failed to stop huge financial spending, and even dollarisation, as envisaged.
The CBN Governor, Godwin Emefiele, had announced at last month’s monetary policy committee (MPC) the pegging of the interest rate at 13 per cent as part of strategies to curtail rising inflationary pressures.
The MPR determines the rates at which commercial banks would eventually be lending to borrowers, most of them private businesses.
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The CBN had believed the new higher lending rates would deter politicians from spending in conserving funds, and, especially, in doling out dollars to delegates at the party primaries.
However, the move failed, as evident in the manner of lavish spending at the various primaries, leaving the organised private sector to be exposed to high cost of funds for their businesses.
“Delegates openly asked to be paid. I didn’t pay delegates because my state urgently needs to be rescued. Three hundred delegates called me to say they voted for me, but I got only two votes to my name,” a gubernatorial aspirant in Kaduna State, Shehu Sani, testified to the money politics at the primaries.
Sani, who decried the spending, urged financial regulatory agencies to track and monitor spending of party officials from ward chairmen to the National Working Committee of the respective parties.
“We all saw the EFCC visit the venue of the Peoples Democratic Party’s primary at the National Stadium. For me, it’s comical, because you cannot get money shared there. The monies have been shared before the main primary day,” he alleged.
Industry analysts lamented businesses would be the ones to be bearing the brunt of the interest rate hike, as politicians seemed to have made their budgets for elections long before now.
“If the Central Bank is keeping its intervention rate at 5 and 9 per cent, why would the commercial bank be lending at much higher rate above 25 per cent,” an economist, Tope Kolade Fasua, told THE ICIR.
Fashua added, “We are still recovering from post-COVID-19 impact, and we need to grow as much as possible. When you increase rate, the commercial banks are quick to mark up their own rates to make more money. This affects lending to businesses.
“We don’t want to reduce our 3.11 GDP growth, we should basically be growing to avoid going back to recession.”
Commercial banks in Nigeria often lend at above 25 per cent interest rate, which puts repayment of such loans by businesses in difficult situations.
This development has affected cost of fund for commercial banks, especially now the economy is still suffering from the impact of COVID-19 pandemic, and more so during the current Russian-Ukraine invasion.
The cost of credits for businesses is expected to be on the rise.
An economist and chief executive officer of the Centre for Promotion of Private Enterprise, Muda Yusuf, who spoke on the development, expressed concern on the implications of the decision to the economy.
“What the recent rate hike means for the economy is that the cost of credit to the few beneficiaries of the bank credits will increase, which will impact their operating costs, prices of their products and profit margins.
“Investors in the fixed income instruments may also benefit from the hike. There would be some adverse effects on the equities market,” Yusuf said.
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.