Finance and economic experts yesterday expressed concerns over the decision of the Central Bank of Nigeria (CBN) to raise the benchmark interest rate by 150 basis points to 26.25 per cent.
Analysts predicted that the decisions of the Monetary Policy Committee (MPC) will not only lead to drop in consumer demand, but would escalate production costs for businesses.

Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said the apex bank should have held down the rate hikes for a number of reasons.

He said: “First, previous rate hikes have been quite aggressive, hurting output and real sector investments. Most economic operators with credit exposures to the banks have not recovered from previous hikes. Interest rates were already around 30% threshold.

“Secondly, extant CRR of 45 per cent has profound liquidity effects on the financial system. Both measures have dampening effects on financial intermediation, which is the primary role of banks in an economy.

“Thirdly, the monetary policy transmission channels are still very weak, given the level of financial inclusion in the economy. This limits the prospects of monetary policy effectiveness.

“Meanwhile, the new rate hike is an additional cross to be borne by investors who have exposures to bank credit facilities. Naturally, a rigid monetarist disposition by the Central Bank is expected. But we need to reckon with the costs to the economy.”

He expressed the hope that with the positive outlook for domestic refining of petroleum products, there may be a moderation in energy cost and a pass through effect on general price level.

“This is one silver lining that is on the horizon at the moment. Necessary fiscal policy support are urgently needed to compensate for the adverse impact of extreme monetarism on the economy,” Yusuf said.

May 22, 2024

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