By Taiwo Adebowale
Members of the Organised Private Sector (OPS) and economists have sounded alarms over the latest hike in Nigeria’s benchmark interest rate, fearing it could trigger a loan repayment crisis and further strain economic operators. The decision, announced by Central Bank of Nigeria (CBN) Governor Olayemi Cardoso at the end of the 295th Monetary Policy Committee (MPC) meeting, saw the interest rate climb to 26.25%, marking the third consecutive rise this year.
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The Rationale Behind the Decision
Defending the move, Governor Cardoso emphasized the MPC’s commitment to achieving price stability amidst persistent inflationary pressures. While noting a recent moderation in inflation rates, Cardoso stressed the importance of the central bank’s tight monetary policy stance in yielding desired outcomes.
Rising Inflation and Economic Implications
Nigeria’s inflation rate soared to 33.69% in April 2024, prompting the MPC to maintain a hawkish stance. Despite concerns about the impact on businesses, Cardoso underscored the need to address inflationary pressures, particularly in food prices, which have been a major driver of inflation.
Private Sector and Economist Backlash
However, members of the OPS and economists have criticized the MPC’s decision, citing potential adverse effects on businesses and the economy at large. Segun Kuti-George, the National Vice Chairman of the Nigerian Association of Small-Scale Industrialists, condemned the rate hike as insensitive, particularly as many businesses rely on credit for survival.
Similarly, Gabriel Idahosa, President of the Lagos Chamber of Commerce and Industry, accused the CBN of using the wrong metrics to combat inflation, urging for a more holistic approach to address underlying economic challenges.
Calls for Policy Reevaluation
Dele Oye, President of the Nigerian Association of Chambers of Commerce Industry Mines and Agriculture (NACCIMA), criticized the lack of engagement with private sector players in policy formulation. He highlighted the need for a clear fiscal policy framework to provide businesses with certainty and support economic stability.
Concerns Over Loan Repayment and Economic Impact
Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, expressed worry over the burden on economic operators with existing credit exposures. He cautioned against the potential dampening effects of the rate hike on financial intermediation and urged for urgent fiscal policy supports to mitigate adverse impacts.
Expert Insights and Critiques
Prof. Jonathan Aremu, a former Assistant Head of Research at the CBN, acknowledged the potential negative effects on businesses seeking funds for operations but suggested the MPC’s decision might be informed by broader macroeconomic objectives.
Prof. Akpan Ekpo, a former Vice-Chancellor of the University of Uyo, criticized the MPC’s approach to combating inflation, arguing that the continuous rate hikes could exacerbate economic challenges without addressing underlying inflation drivers.
CBN’s Response and Banking Sector Resilience
Despite mounting criticisms, Governor Cardoso reassured stakeholders of the banking sector’s strength and resilience. He emphasized the ongoing recapitalization efforts as necessary preparations for Nigeria’s projected economic growth and reiterated the CBN’s commitment to ensuring a robust banking system.
Looking Ahead: Balancing Monetary Policy and Economic Stability
As Nigeria navigates through inflationary pressures and economic uncertainties, the MPC’s decision to raise the interest rate underscores the delicate balance between curbing inflation and supporting economic growth. While concerns persist about the potential adverse effects on businesses, the CBN remains steadfast in its commitment to fostering financial stability and steering the economy towards sustainable growth.
Stay tuned to Atlantic Post for further insights and updates on Nigeria’s economic landscape and monetary policy developments.
Taiwo Adebowale is Atlantic Post Senior Business Correspondent
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