French The organized private sector has expressed concern that the interest rate hike by the Central Bank of Nigeria’s Monetary Policy Committee could exacerbate bad loans at various deposit banks.
On Tuesday, the MPC voted for the fifth time this year to raise the monetary policy rate, a measure of benchmark interest rates, to 27.
25%.
The monetary policy rate is the base interest rate in the economy.
All other interest rates used in the economy are based on the MPR.
Central Bank Governor Olayemi Cardoso made the announcement at a press conference following the 297th meeting of the Monetary Policy Committee in Abuja.
He said the committee members had unanimously decided to tighten monetary policy further.
The new rate, a move that stunned financial markets, represents a 50 basis point increase from the 26.
75% rate announced by the central bank in July 2024.
The new rate reflects an 8.
5% rate hike under the current leadership, who took office a year ago and has continued a wave of rate hikes since May 2022, when the aggressive monetary policy measures began.
“The committee was unanimous in its decision to further tighten policy and therefore decided as follows: first: to raise the MPR to 27.
25%.
» However, the MPC kept the asymmetric corridor around the MPR at +500 to -100 basis points and increased the reserve requirement ratio for retail banks by 500 basis points to 50% and that for retail banks by 200 basis points to 16.
% from 14% and kept the liquidity ratio at 30%.
He added: “The MPC has decided to keep the asymmetric corridor around the MPR at plus 500 to minus 100 basis points.
It also increased the reserve requirement ratio for retail banks by 500 basis points from 45 to 50 percent and for commercial banks by 200 basis points from 14 to 16 percent, while maintaining the reserve requirement ratio at 30 percent.
According to the CBN, the decision to raise interest rates was based on recent economic developments related to inflation and stability in the foreign exchange market.
He cited threats of food inflation, floods in many parts of the country and rising fuel and energy prices as reasons for further tightening of monetary policy.
Financial experts had predicted that the CBN would maintain or cut interest rates after two consecutive months of falling headline inflation.
Nigeria’s inflation rate fell to 33.
4 percent in July from 34.
19 percent in June 2024 and further declined to 32.
2 percent in August.
However, there are concerns that inflation in Nigeria will pick up after two months of slowdown due to fuel shortages and the subsequent increase in fuel prices by NNPCL.
Last month, NNPCL notified Nigerians of an increase in the pump price of petrol from N617 per litre to N897, while transport prices were also increased.
Continuing, the CBN Governor said the bank has observed a correlation between the monthly disbursements of the Federation Accounts Allocation Committee and the liquidity of the banking system, clarifying that this has an impact on the exchange rate.
As such, the bank will start monitoring future FAAC disbursements to determine their impact on prices.
“The MPC noted the continued growth in money supply, recognised the need to reduce excess liquidity in the system and respond to foreign exchange demand pressures,” he said.
»
“Members were also concerned about the growing budget deficit, but noted the efforts of the budget authorities not to use financial resources by any means and means.
Furthermore, members observed a close correlation between the issuance of FAACs and the liquidity of the banking system as well as its impact on the exchange rate.
» Speaking about the lack of liquidity at most bank ATMs, Cardoso said the central bank is working closely to ensure that there is sufficient liquidity in the system.
French According to the CBN governor, banks have no excuse not to release cash.
He also revealed that N1.
4 trillion will be released in the next three months to support the flow of money in the banking system.
“Another N1.
4 trillion is expected to be released in another three months to support this entire flow of money in the system,” he said.
OPS responds The National President of the Association of Small Business Owners of Nigeria, Dr.
Femi Egbesola, said it was unfortunate that the increase came when manufacturers and stakeholders in the real sector were still grappling with high operating costs of doing business among other challenges.
“This will certainly increase the cost of doing business and ultimately the price of goods and services.
The manufacturing sector may contract further as liquidity and profitability of funds will certainly decline,” he said.
“Banks or financial institutions may face increased bad debts as many lenders find it difficult to meet their loan obligations.
This will lead to banks being reluctant to lend to the real sector.
”
Frenchman Egbesola noted that the economy could potentially be further contrasted, forcing real sector players to reduce their production capacity, human resources, costs and become more accessible to loans.
“We may start to see more companies struggling or going into coma,” he added.
“Our competitiveness in national, continental and global affairs will be further tested as products made in Nigeria will naturally be more expensive than before, among other things.
“It is time for the government to do more to promote ease of doing business, support and intervene specifically in the health, growth, development and sustainability of SMEs and the manufacturing sector.
» Meanwhile, President of the Association of Nigerian Chambers of Commerce, Industry, Mines and Agriculture, Dele Oye, has expressed concern over the CBN’s recent hike in the monetary policy rate to 27.
25%.
“This move has made borrowing costs for businesses higher, compounding their woes and failing to curb inflation or stabilise the naira,” he said.
“We urge the CBN to engage with stakeholders for a collaborative approach, looking at alternatives such as targeted sector support, deficit reduction and promoting local manufacturing.
“Reassessing strategies is essential to ensure effective economic management and sustainable growth in Nigeria.
Dialogue and innovative solutions are needed to reposition our economy.
» The NACCIMA boss added that the increase is 50 basis points from the 26.
75% announced by the central bank in July 2024.
He added: “The increase is not a significant change.
The real story is the upward trend.
This is a confirmation that the previous high interest rates have not worked.
France So instead of high interest rates.
» The Centre for the Promotion of Private Enterprise said the decision by the Monetary Policy Committee of the Central Bank of Nigeria to increase the monetary policy rate to 27.
25% is detrimental to investment and economic growth.
CPPE Director Dr.
Muda Yusuf said the MPC’s decision goes against most economic stakeholders and the private sector’s desire for economic recovery and growth.
“It is worrying that at a time when manufacturers, entrepreneurs and other investors in the economy are yearning for a breath of fresh air, the CBN has chosen to tighten the noose by further tightening monetary policy,” Yusuf said.
CPPE noted that instead of tightening the MPR, “producers and other investors need some oxygen and stimulus right now, not policy measures that could exacerbate an already suffocating situation.
The French added that “MPR at 27.
25%, CRR at 50% and asymmetric corridors at +500 and -100 are very difficult monetary conditions for most companies, given the prevailing macroeconomic conditions and structural factors.
» CPPE believes that the private sector is not responsible for liquidity growth and should not pay the price.
The CPPE director warned that the issue of excess liquidity needs to be addressed in a causal context, as he observed that “the injection of liquidity into the system is largely driven by the public sector” and therefore needs to be addressed in this context.
Yusuf noted that tightening financial conditions to address liquidity issues is not appropriate as the Nigerian economy is struggling due to slowing manufacturing and other industrial sectors such as cement, food and beverages, chemicals and pharmaceuticals, trading, IT and real estate.
“The implications of the latest MPC decision for investors are quite worrying as the cost of funds will be further exacerbated, perhaps to 35% or more,” he said.
»
CPPE said the CBN’s policy decisions are “highly inconsistent with the current economic conditions and challenges facing domestic entrepreneurs” as it will further increase the operating and production costs of businesses.
Furthermore, Yusuf estimated that increasing the CRR to 50% would “restrict financial intermediation with negative consequences for the banking system and the economy.
”
But financial markets expert and professor Uche Uwaleke said members of the Monetary Policy Committee were determined to mitigate threats to the exchange rate and domestic inflation.
“My view on the recent increase in the MPR is that in matters like this, the CBN often has information that may not be publicly available.
“I would like to believe that the MPC members have good intentions for the economy and have decided to further tighten monetary policy based on strong evidence of major threats to the exchange rate and inflation,” he stated.
