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The Centre for the Promotion of Private Enterprises (CPPE) has stated that although the raising of the benchmark interest rate by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) was expected, it means the cost of fund to the few beneficiaries of banks’ credits will increase.

This, it said, will impact their (manufacturers etc) operating costs, prices of their products and profit margins.

Founder and Chief Executive Officer of the center, Dr. Muda Yusuf, stated this while reacting to the communiqué of the just concluded May MPC meeting during a chat with Business Hallmark..

This is the first time the apex bank is raising the interest rate in two years, having pursued an expansionary monetary policy in the last 24 months.

The CBN governor, Godwin Emefiele, after the third MPC meeting of 2022 on Tuesday, noted that the committee backed the raising of the benchmark interest rate from 11.5 per cent to 13.5 per cent.

While addressing reporters after the MPC meeting in Abuja, Emefiele justified the raise, saying that the MPC was suspicious there might be an aggressive accretion of inflation.

To prevent the looming inflation, he said, the MPC had to increase the monetary policy rate by 150 basis points.

The apex bank retained the asymmetric corridor around the MPR at +100 /-700 basis points, Cash Reserve Ratio at 27.4 per cent, and Liquidity Ratio at 30 percent.

Speaking Business Hallmark, Yusuf, however, acknowledged that the outcome of the MPC meeting was not unexpected having regard to the intense inflationary pressures, the increasing risks to price stability and the policy tightening trend by central banks globally.

According him, numerous headwinds had posed significant risks to price stability, which is the critical objective of the apex bank.

Some of these headwinds, he said, “include the surge in commodity prices and impact on energy cost, spike in domestic liquidity from electioneering related spending and global supply chain disruptions.”

Yusuf speaks further: “The hike in MPR by 150 basis points to 13% by the MPC is therefore understandable. But whether this would significantly impact on the inflation is a different matter.

“Already, bank lending has been constrained by the high CRR [many operators in the sector claim that effective CRR is as high as 50% or more for many banks], the discretionary debits by the apex bank, the 65% Loan to Deposit Ratio [LDR] and liquidity ratio of 30%. Lending situation in the economy is already very tight.

“The Nigerian economy is not a credit driven economy, unlike what obtains in many advanced economies which have much higher levels of financial inclusion, robust consumer credit framework and strong correlation between interest rate and aggregate demand.

“The level of financial inclusion in the Nigerian economy is still quite low, access to credit by households and MSMEs is still very challenging, and the informal sector accounts for close to 50% of the economy.

“The transmission effects of monetary policy on the economy is therefore still very weak. In the Nigerian context, price levels are not interest sensitive. Supply side issues are much more profound drivers of inflation.

“What the recent rate hike means for the economy is that the cost of credit to the few beneficiaries of the bank credits will increase which will impact their operating costs, prices of their products and profit margins.

“Investors in the fixed income instruments may also benefit from the hike. There would be some adverse effects on the equities market.”



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