Chizea hails CBN’s rate cut but says 27% still too high for real sector

Chief Executive Officer of BIC Consultancy Services, Dr. Boniface Chizea has welcomed the Central Bank of Nigeria’s decision to reduce its Monetary Policy Rate (MPR) by 50 basis points to 27%, but warned that the rate remains too high to stimulate borrowing in the productive sector.

In a statement on Tuesday, Chizea said while the cut – announced after the CBN’s Monetary Policy Committee (MPC) meeting in Abuja on Tuesday – will bring some relief to large corporate borrowers and may attract foreign portfolio inflows, it is unlikely to significantly boost real sector investment in the near term.

“The interest rate at 27% is still too high. There is nobody who can borrow at such rates for real sector business. But the reduction would amount to substantial savings for many corporate investors who do massive borrowings,” he noted.

Chizea explained that the signalling effect of the reduction was important, but warned against expecting immediate results due to the transmission lag of monetary policy. He contrasted Nigeria’s high rates with advanced economies, where interest rates remain in single digits.

He argued that inflation in Nigeria is largely driven by cost-push factors, such as food prices, energy costs, and insecurity, rather than demand-pull pressures, suggesting that aggressive rate hikes in the past had limited impact.

“The probable only main advantage might be to attract portfolio investors – hot money looking to make quick gains. And since there is an urgent need for foreign exchange inflows to stabilise the exchange rate, that was a strong attraction. Otherwise, interest rate hike is a factor cost increase, which is in itself inflationary,” he added.

Chizea commended the CBN for returning to what he described as “the path of professionalism” but stressed that monetary policy alone cannot tackle inflation. He called for stricter fiscal discipline, reduced budget deficits, improved security to restore agricultural output, and reliable electricity supply to ease production costs.

“The Central Bank cannot fight inflation alone. It needs the disciplined cooperation of the fiscal authorities for any meaningful impacts,” he said, urging a coordinated policy approach to achieve macroeconomic stability.

The cut marks the first reduction in Nigeria’s benchmark interest rate since 2020, following five consecutive months of easing inflationary pressures.