Mixed Reactions Trail CBN's Increase In Interest Rate

Some financial experts on Wednesday expressed divergent views on the recent increase in benchmark interest rate by the Central Bank of Nigeria (CBN) from 6.5 per cent to 7.5 per cent.

They said in separate interviews with the News Agency of Nigeria (NAN) in Lagos that it would have adverse effects on the nation’s economy, while others condemned the action.

NAN reports that CBN Governor Lamido Sanusi announced the increase on Tuesday in Abuja after a meeting of the Monetary Policy Committee.

The benchmark interest rate — Monetary Policy Rate (MPR) — went up by 100 basis point from 6.5 per cent to 7.5 per cent on Tuesday to frontload monetary tightening as government spending continues to rise.

NAN also reports that this is the second time this year that the CBN would raise the MPR, the rate at which it lends to commercial banks.

The first was in January when it was raised by 25 basis points to 6.5 per cent.

Mr. Eddie Osarewkhoe, President, Finance Houses Association of Nigeria (FHAN) said that increase in the benchmark would force many banks to demand for high interest rates on loans.

Osarewkhoe said, “If the rate at which CBN lends to banks goes up, the banks rates would also go up and this is not good for the economy.”

He said that this would place the manufacturers at a comparative disadvantage with their international counterparts because the cost of doing business would be higher.

Osarewkhoe said that increase in the benchmark would discourage investors from taking the bank loans.

“No investors would be willing to borrow at high rate, unless the returns on the investment are very high,” he said.

Dr. Kazeem Bello, a lecturer in the Department of Economics, University of Ibadan, said that the CBN monetary measure was a means of ensuring that excess liquidity within the circulation was mopped up.

Bello said that the step was part of the directive to keep inflation rate on the track to reduce it to a single digit.