The Manufacturers Association of Nigeria, the Lagos Chamber of Commerce and Industry and the Nigerian-American Chamber of Commerce have criticized the monetary policy rate hike by the Central Bank of Nigeria, saying the policy will hurt the Nigerian economy.
CBN Governor Godwin Emefiele after the third meeting of the monetary policy committee, MPC, of 2022 on Tuesday noted that the committee had backed raising the benchmark interest rate from 11.5% to 13.5 %.
It is the first time the apex bank has raised its interest rate in two years, after pursuing an expansionary monetary policy for the past 24 months.
Speaking to reporters after the MPC meeting in Abuja, Emefiele justified the increase, saying the MPC suspected there could be an aggressive rise in inflation.
To prevent impending inflation, he said, the MPC had to raise the key monetary policy rate by 150 basis points.
The apex bank kept the asymmetric corridor around the MPR at +100/-700 basis points, the cash reserve ratio at 27.4% and the liquidity ratio at 30%.
MAN, LCCI and NACC criticize this decision
Reacting to the development, MAN Chairman Mansur Ahmed told The Punch that the move would worsen the plight of manufacturers, especially the small-scale segment of the productive sector.
Ahmed said, “Commercial loans are already out of reach for manufacturers, especially small and medium-sized manufacturers. The continued rise in food prices is worrying. Then the exchange rate continues to rise. Where are we going as a country? CBN management will have to do something about this.
He was, however, aware that the continued rise in inflation locally and internationally had necessitated the move, noting that it was unfortunate that Nigeria was not reaping the gains from high oil prices in the current oil boom.
For his part, LCCI Vice President Gabriel Idahosa called the development inevitable, given the recent upward inflationary trend.
“Actually, it was expected because inflation went up to 16%. The CBN’s target is 13%, so we have lost the downward trend inflation rate that has been going on for a number of months. Last week, the financial community expected the CBN to raise the interest rate, starting with the one just announced. It was predictable. »
He said the increase in lending rates would cause more hardship due to the higher cost of borrowing which would apply to all sectors of the economy.
“It means more difficulties. This means a higher cost of borrowing,” he noted, saying all sectors of the economy would now feel the effects.
Similarly, the Director General of the Nigerian American Chamber of Commerce, Sola Obadimu, condemned the CBN’s decision. He further stated that an indiscriminate increase in the lending rate by the CBN will inevitably lead to an increase in the cost of doing business.
He said: “There is no way to run a business efficiently at such rates. All of these things have been brought up a million times by the private sector because realistically you can’t get loans from the bank at the rate (13%). It’s just another entry in the range of factors that affect the cost of doing business.
He said the government has continuously shown indifference to the plight of the private sector through inflexible taxation and several other policies.
“I think industry and enterprise are usually killed off gradually. If you’re an employer of labor, the government tells you indirectly, who asked you to employ people? There’s no effort to support business growth. There is a multiplicity of taxes by various government agencies. Some private sector operators are determined to stay in business, some are closing, others are moving. This trend will continue. This is total apathy towards private enterprise.
The Director of Trade, Investment and Programs at the Nigerian-British Chamber of Commerce, Ine Wiche, also criticized the CBN’s decision, describing the interest rate hike as untimely and a step in the wrong direction. .
“We don’t need that now. Everyone cries that things are getting more expensive. We don’t need additional increases now. I don’t think that’s a good decision. This is a step in the wrong direction. »
For his part, the former president of the National Association of Small Industrialists, Segun Kuti-George, said the decision was inevitable with rising inflation across the world.
However, he noted that the rise in interest rates would increase production costs, reduce the employment capacity of SMEs and the purchasing power of consumers.
“The cost of funds will increase; production costs will increase and unemployment will also increase. People may not be able to afford what is on sale,” he said.
Expected situation but may have adverse effects –Economists
Economists told The Punch that the situation was expected given several global realities such as rising inflation, the Russian-Ukrainian conflict, COVID-19 and other headwinds.
The Managing Director of the Center for Promoting Private Enterprise, Dr. Muda Yusuf, noted that “the MPR hike of 150 basis points to 13% by the MPC is therefore understandable.”
He was, however, unsure of the impact the rate hike would have on inflation.
“What the recent rate hike means for the economy is that the cost of credit for the few recipients of bank credit will increase, which will impact their operating costs, product prices and their profit margins.
“Investors in fixed income instruments could also benefit from the rise. There would be negative effects on the stock market.
He called on the country to address security issues that disrupt agricultural activities, while reforming the foreign exchange market to stabilize the exchange rate and boost foreign exchange inflows.
An economist and lecturer in economics at Pan-Atlantic University, Dr. Olalekan Aworinde, said the move had both pros and cons.
On the downside, he said rising interest rates would make it difficult for businesses to get credit from banks, meaning many businesses might not have enough money to boost productivity.
He added that the CBN’s move could also lead to higher prices as business owners want to get enough money to pay off the debt at a higher interest rate.
He said: “Once interest rates rise, access to loanable funds will be more difficult. This also means that the level of domestic investment will be affected. For business owners, they are unlikely to approach banks to borrow money, which may affect the level of production in the country.
He, however, said the move could lead to the stabilization of the Naira for the country.
Cordros Capital analysts, however, said the MPC was in line with central bank actions across the continent.
He said that “for context, the Bank of Ghana voted to increase the monetary policy rate by 200 basis points to 19.00% at its policy meeting in May. Similarly, the Reserve Bank of South Africa’s Monetary Policy Committee raised the repo rate by 50 basis points to 4.75% at its May meeting, while the Central Bank of Egypt recently raised the deposit and lending rate by 200 basis points each to 11.25% and 10.25% respectively.
“On the global front, the story is no different as the US Federal Reserve raised the federal funds rate a cumulative 75 basis points. At the same time, the Bank of England raised rates rate for the fourth consecutive time at its just-concluded meeting (May 5) from 0.25% to 1.0%.The common reason given by these central banks is the need to combat inflationary pressures and tighten the screw to easy money.
Nigeria’s interest rate among the highest in emerging markets
Nigeria’s rate is among the highest in the emerging market, according to the results.
South Africa’s rate is currently 4.75%, while Namibia’s lending rate in February 2022 was 4%.
Similarly, Zambia’s rate is 9% while Botswana’s was 1.65%. The other emerging countries are also weak. that of Vietnam was 7.8%; India, 8.80%; UAE, 4.75%, while Uganda is 6.5%. However, those of Brazil and Kenya are at 11.75% and 12.17% respectively.
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