Business owners Decry Hike in CBN Interest Rate
Anthony Ekpo-Bassey
Business owners across the country have decried the recent hike in interest rate by the Central Bank of Nigeria.
Announcing the apex bank’s decision after a Monetary Policy Committee meeting yesterday, The Governor of the Central Bank of Nigeria, Mr. Olayemi Cardoso, said the MPC voted unanimously to raise the monetary policy by 25 basis points from 27.25% to 27.50%; and retain the Cash Reserve Ratio (CRR) at 50% for Deposit Money Banks and 16% for Merchant Banks.
“The Committee was unanimous in its agreement to raise the monetary policy rate by 25 basis points to 27.50 percent. The considerations of the meeting were held on the backdrop of renewed inflationary pressures as the headline food and core measures rose year on, year in 2024. Members therefore agreed unanimously to remain focused on addressing price developments.” Cardoso explained.
Considering that this is the 6th time the CBN has raised the interest rate since February 2024, business owners across the country have frown against the apex bank’s decision and described it as “unfriendly and unfavourable” considering the dwindling economy.
A thriving entrepreneur in Calabar who preferred anonymity said that: “the business climate in the country was already unfriendly and unfavourable and this policy will further worsen the situation.”
According to a business owner in Lagos, who deals on electrical products and did not want his name in print, “the policy will stifle a lot of businesses in the country. He lamented.
Speaking with our Correspondent, an Owerri-based Risk Manager with over a decade experience in the banking sector, Mr. Sylvanus Ibiang, said that: “The CBN is trying to solve the problem of inflation and naira depreciation by putting square pegs in round holes. For instance, raising the MPR makes borrowing more expensive and encourages savings, thereby reducing money supply and curbing inflationary pressures. This would have been the case if the inflation in Nigeria was caused by high money supply or excess money supply in circulation. While this is a standard monetary policy tool, Nigeria’s inflation often stems from structural issues such as; Supply chain disruptions, Rising fuel prices, High import dependence, Insecurity affecting agricultural output etc.” Ibiang, said.
According to him, these structural problems mean that the impact of MPR hikes on inflation is often limited, as they do not directly address supply-side constraints.
Ibiang, further said that: “Increasing the MPR is also aimed at attracting foreign investments into Nigeria’s financial markets by offering higher returns, thereby boosting foreign exchange reserves and stabilizing the naira. This strategy can provide short-term relief. However, sustained naira stability requires Improved export earnings to reduce over-reliance on imports, Effective management of the foreign exchange market, including transparency in forex allocations, Enhanced investor confidence through favourable policies. MPR Increases leads to increased interest rates on loans, which can stifle economic growth by making credit more expensive for businesses and households.”
He regretted that: “The increases have had very limited impact on Inflation. With inflation driven more by structural factors than monetary ones, MPR hikes have not significantly reduced inflation but contributes to dampen economic activity. Also, High MPR also leads to Burden on the Private Sector which is caused by high borrowing costs that can deter investment and expansion, particularly for small and medium-sized enterprises (SMEs).”
“Alternative measures the CBN and Nigerian government can adopt to reduce inflation and stabilize the naira includes; Addressing structural issues like infrastructure deficits and insecurity, Promote local production and reduce import dependence, Enhance export diversification to generate foreign exchange, Implement fiscal policies that complement monetary actions, such as reducing unnecessary government spending.” The Risk Expert, advised.
He concluded that while MPR hikes are a useful tool available to the CBN, it’s impact is limited without addressing underlying structural and fiscal challenges.
