•LCCI: Rate hike will not reduce inflation •Difficult time for farmers
Banks are likely to review rates for loaned funds after the Central Bank of Nigeria (CBN)-led Monetary Policy Committee (MPC) decision to raise benchmark interest rate from 15.5 per cent to 16.5 per cent, analysts have said.
An economist and financial analyst, Michael Ndidi, said the 100 percent basis point interest rate hike will push banks into reviewing loan rates as cost of funds continue to rise.
According to Ndidi, the rate hike will also lead local industries to review upwards, the cost of products at a time when inflation is also rising, and people’s purchasing power weakening.
He said banks do not waste time in raising lending rates, but find it difficult to increase interest on savings.
“I think the CBN should enforce its policy on interest rates on savings and monitor to ensure banks pay the right interest on deposit to savers”.
Analysts at Cordros Capital said the MPC decision was expectedly based on the CBN’s commitment to rein in rising inflation.
Cordros Capital noted that the Governor of CBN, Mr. Godwin Emefiele, had in the last two meetings maintained that the apex bank would maintain its interest rate hikes until there is a deceleration in the inflation path. Emefiele had pointed out that “time-tested monetary policy has shown that inflation must lag policy rates”.
This, others insisted, will lead to loan reprising and increased cost of borrowing for
The National Bureau of Statistics (NBS) recently released the latest inflation figure showing that inflation rate rose by 0.32 per cent from 20.77 per cent in September 2022 to 21.09 per cent in October 2022.
Cordros Capital pointed out that the inflation rate at a 17-year high has dire implications on macroeconomic stability, depressing the long-run potential Gross Domestic Products (GDP).
“The MPC has only marched on with its interest rate hike to re-anchor inflation expectations, which an econometric study by the CBN showed is the most significant driver of actual inflation in Nigeria,” according to one of the Monetary Policy Committee members.
The Chief Executive Officer (CEO), Centre for Promotion of Private Enterprise ( CPPE), Dr Muda Yusuf speaking on the recent CBN hike in the Monetary Policy Rate rate from 15.5 per cent to 16.5 percent said it will hurt investors in the real sector.
He also stated that It would impact negatively on economic growth outcomes as lending rates increased on account of the hike in the Monetary Policy Rate( MPR).
He further explained that the supply side factors are more critical in tackling inflation at this time.
He advised the Central Bank of Nigeria (CBN) to collaborate with the fiscal authorities to fix the challenges of high energy cost, currency depreciation and rising transportation cost.
He also tasked CBN on the need to check insecurity, climate change and structural bottlenecks to productivity in the economy. Adding that these are more sustainable pathways to curb rising inflation.
On how to deal with currency counterfeiters especially with the current redesign of the Naira, he declined to comment on it but insisted that the re-designing of the Naira is a waste besides its wrong timing and probably only the CBN governor has the answer
Lagos Chamber of Commerce.
Also speaking, Deputy President, Lagos Chamber of Commerce & Industry (LCCI), Gabriel Idahosa said the CBN rate hike is yet another effort to stem the rising inflation.
According to him however, like previous hikes it is not likely to significantly check further spike in the inflation rate.
He argued that most Nigerians do not actually have excess liquidity that can be attracted into savings by the high interest rates offered by the CBN MPR increase.
He said : ” Food inflation driven by reduced food production and imported inflation from the rising foreign exchange rates continue to overwhelm CBN efforts to slow down inflation”.
They lamented that the decline in sales and production of most sectors of the economy will be intensified.
Idahosa stressed the need to increase foreign exchange inflow by ending crude oil theft and improving food production by ending insecurity in the nation’s farmlands and highways remain the foreseeable solutions in the short term.
On the challenges that can be associated with the new Naira re-design the LCCI chief responded that very few currencies in the world can boast of their currencies not having been counterfeited at a point in their history.
“That’s why most advanced countries have moved rapidly towards a cashless economy”. “These countries have also eliminated higher denominations in their currency system. These measures were meant to discourage large scale high impact counterfeiting”.
He advised policy makers and the government to be a step ahead of currency counterfeiters by ensuring that they have a hedge over security printing and counterfeit currency detection technologies including the need to constantly advance and be ahead of counterfeiters.
Meanwhile, President, Federation of Agro Commodities Association of Nigeria (FACAN), Dr Victor Iyama has warned that an above-inflation increase will occur with the rise of interest in a difficult economic climate already threatening the financial viability of many farmers.
He observed that the industry is going to see the rising cost of labour and inputs which will be difficult for food producers to cope with.
He explained that the sector has been absorbing so many increases introduced in the pre-pandemic years.
Since then. he said the industry has faced significant pressures , warning that the trend of above-inflation rises would affect the sector in the short and long term.
President, Association of Small Business Owners of Nigeria (ASBON)Dr Femi Egbesola added that small businesses were going to face significant headwinds which will reflect in cost pressures on all consumers.
According to him, the sector is going to come under pressure if the banks implement interest rates that are untethered from economic reality.
He warned that the population of loan defaulters will surge which has short- and long-term ramifications for the future economic contribution of the sector to the nation’s gross domestic product (GDP).