Experts React As CBN Increases Interest Rate To 15.5%

Following the Central Bank of Nigeria’s hike in the interest rate on Tuesday from 14 per cent to 15.5 per cent, the Director-General of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, Olusola Obadimu, described the rate hike as “a panic measure.”

He said, “It is a pure panic measure. They might think that by raising interest rates, investors would be attracted to remain and others to come in and invest.

“However, an economy such as ours that is heavily import-dependent, experiencing stagflation and risking recession would not likely stand a chance.”

He said Nigeria must remain committed to its debt servicing obligations and control an appetite for more loans, particularly those taken to finance non-developmental efforts – both at the federal and the state levels.

He noted that the Federal Government must incentivise companies sourcing their raw materials locally.

“Additionally, we urgently need to promote exports, harmonise the exchange rates and encourage import substitution.

Prof Uche Uwaleke, a Professor of capital market and Chairman Chartered Institute of Bankers of Nigeria, Abuja Branch has revealed that the rate hike will hurt capital costs.

“I think the decision by the MPC to further tighten monetary policy is justified by the need to tame inflationary and forex pressures and possibly stem capital outflows on account of the hike in policy rates in developed economies, especially in the US and UK.

"The primary mandate of the CBN is to maintain price stability.

“But, it has grave implications for the cost of capital for firms, cost of borrowing by the government, stock market performance and output growth in general.

"It may also affect the asset quality of banks as they re-price their loans in response to the hike in MPR.”

He said that lending rates would go up, which would not bode well for small businesses seeking expansion.

“Expansion leads to higher production and higher profitability, which will also lead to employment generation.

"When people don’t have access to cheap funds, particularly the MSMEs, it’s not good for the economy.”

Deputy-President of the Lagos Chamber of Commerce, Gabriel Idahosa, said the CBN had to increase the MPR in an effort to stem the rising inflation rate that had crossed the 20 per cent mark.

“The economy now threatens to slide into runaway inflation – which is uncontrollable in the short term.

"This sharp rise in MPR may help to slow down the inflation if it is supported by significant efforts to reduce the production costs of goods and services,” he noted.

Also speaking, Segun Kuti- George, the Former President, of the Nigerian Association of Small Scale Industrialists, said what the government was trying to do with the rate hike was simply to attract more investments and reduce inflation.

“That is, more people will be putting their money in banks in fixed deposits.

"But they are looking at one side of the coin. In economics, whenever you are taking an action, you must look at the other side of it very critically.”