Monetary Interest Rate (MIR) is further tightened as CBN’s increase of interest rate by 24.5% rate hike puts borrowers on the edge. This is an attempt by the Central Bank of Nigeria to deal with the problem of inflation which the country is currently facing.
However, the news of CBN’s increase of interest was not really well-taken as the increase in interest rate will cause more difficulty for the production sector and other debtors of different commercial banks under Central bank of Nigeria
It all started on Tuesday, 27th march during 294th meeting of the Monetary Policy Committee (MPC), the central bank showed an interest rate benchmark by 200 basis points to 24.75 percent from 22.75 in a bid to exterminate Nigeria’s stagflation that has been food inflation rise to 37.92 percent since February 2024.
With the high cost of funds it presents an important challenge to all businesses and the country’s economy. The problem with the CBN’s increase in interest rate especially on businesses here in Nigeria, is that it creates increased borrowing expenses, which can bring down their financial resources and limits investment in other streams.
Those affected by this mostly are Small and medium-sized enterprises (SMEs), in particular, as they face heightened difficulty in affordable financing, which will limit their growth capacity.
Note that the MPC also rearranged the asymmetric corridor around the MPR to +100/-300 basis points, while maintaining the Cash Reserve Ratio of Deposit Money Banks at 45 percent. They also removed the Cash Reserve Ratio of Merchant Banks from 10.0 percent to 14 percent, and maintained the Liquidity Ratio at 30 per cent.
The Governor of the Central Bank of Nigeria, Olayemi Cardoso, who released this information to the press on the decisions of the MPC meeting, on Wednesday in Abuja said the “considerations underscore the importance of the CBN’s commitment to the price stability mandate and the need to urgently bring inflation under control to ensure that the purchasing power of ordinary Nigerians is restored in the short to medium term.”
However, he continued to assure that the increase of interest rate is merely temporary and he expects that it will be over soon.
The CBN governor also said that his authorities has refused to approve the outstanding $2.4 billion Forex transactions because they were not legible for forex allocation.
Olayemi Cardoso made this remark on Wednesday in reaction to airline operators who claimed that CBN lied in their statement of settling all FX backlog to its members.
Cardoso said the central bank depends on the report by Deloitte Consultants to disapprove for the applications.
He said,
“In some cases, some allocations were made without being requested. You also had some where they had no naira and they allocated foreign exchange. It was for that reason that we refused to validate those particular transactions. Because, apart from the fact that documentation was not satisfactory, many cases were outright illegal,”
These were the responds he gave while responding to questions from journalists at the end of the just concluded meeting of the MPC of the bank.
He also said that the law enforcement agencies are now investigating the transactions that are not eligible for payment.
However, he continued to say that if there is any news to the contrary, the management of CBN would relate it to the public.
“Other transactions have been settled. And as of today, the valid transactions – as far as the Central Bank of Nigeria is concerned – have been taken care of. We are also not unmindful of the fact that there may be some stakeholders who over some time may have had a backlog in one form or the other,” he said.
Olaayemi Cardoso said his administration has done it’s best to ensure that the FX market as transparent and liquid record as clean as possible.
Reacting to the outcome of the MPC meeting, other economic professional said that in as much as tightening is important at this time because of the rising inflation, MPC should tighten policy increment and in an ordered manner that shows the CBN’s policy tool kit without undue dependency on the monetary policy rate.
The Professor of capital market and former commissioner of finance in Imo State, Uche Uwaleke, jointly said that the development is now propelling undue tension by banks on the CBN’s Standing Lending Facility and rising the cost of funds on a general note.
“The CBN should recognise that the challenge currently facing the Nigerian economy is not just inflation but stagflation, and to this end should equally have regard to growth concerns in future meetings of the MPC,” he said.
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