How CBN's Monetary Rates Hike Threaten Investment, Business Survival

…Raises benchmark interest rate to 27.25%, CRR 50%

Samuel Mobolaji

Nigeria’s economic recovery hopes suffered a significant setback as the Central Bank of Nigeria (CBN) unveiled a hawkish monetary policy stance, tightening the noose on already struggling businesses.

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has further increased the Monetary Policy Rate (MPR) by 50 basis points to 27.25 per cent from 26.75 per cent, increase the Cash Reserve Ratio (CRR) to 50 per cent, and maintain the asymmetric corridor at +500 and -100 has left investors and entrepreneurs reeling.

The Governor of the CBN, Yemi Cardoso, made this known on Tuesday in Abuja, while reading the communiqué from the 297th meeting of the MPC.

However, the move, which aimed at curbing inflation and excess liquidity, has sparked widespread concern among stakeholders, who argue that the policy decisions are ill-timed and detrimental to economic growth.

Commenting on this development, Director/CEO of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said: “The CBN’s decision is a monetary straitjacket that will stifle investment, exacerbate operating costs, and constrain financial intermediation,” said

Nigeria’s economy, still recovering from the pandemic-induced downturn, recorded a disappointing 2.5% growth rate in the second quarter, with critical sectors such as manufacturing, trade, and real estate slowing down.

“The economy is already gasping for air, and the CBN’s decision will only make things worse,” Yusuf added.

Analysts, therefore, warn that the increased interest rate will push borrowing costs above 35 per cent, further squeezing businesses already struggling with high operating expenses.

“This policy decision will have far-reaching implications for the economy, particularly for small and medium-scale enterprises (SMEs), which are the backbone of Nigeria’s economic growth,” said economist and financial expert, Bismarck Rewane.

As the CBN struggles to balance price stability with economic growth, stakeholders urge caution, advocating for targeted measures to address excess liquidity and stimulate economic recovery.

“With the 2024 budget already facing significant challenges, the CBN’s decision may undermine the government’s efforts to revitalize the economy,” Rewane noted.

As Nigeria’s economy teeters on the brink, the CBN must reassess its policy decisions to avoid choking the life out of the country’s struggling businesses.