Ignoring outcries by the organised private sector about the high rate of borrowing funds, the Central Bank of Nigeria (CBN) has further raised its benchmark interest rate by 50 basis points to 26.75 percent from 26.25 percent.
CBN Governor, Olayemi Cardoso, who disclosed this to journalists at the end of the 296th Monetary Policy Committee (MPC) meeting in Abuja on Tuesday, said the decision is part of an aggressive attempt to tame the nation’s headline inflation rate currently at 34.19 percent.
Billionaire businessman Aliko Dangote had recently echoed the complaint by captains of industry and the public that the 26.25 percent was a disincentive to borrowing for production.
Similarly, the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) warned against the potential consequences of high interests.
National President of NACCIMA, Dele Oye, pointed out that increase in interest rates often resulted in higher costs and increased uncertainty, which could have a range of negative impacts on businesses and growth prospects.
The apex bank, however, retained the Cash Reserve Ratio (CRR) for deposit money banks at 45 percent and the Liquidity Ratio at 30 percent.
The benchmark interest rate, also called the monetary policy rate (MPR), determines the cost of borrowing in the economy. It can be considered the interest rate the CBN uses to lend to banks who then lend to customers at a higher rate.
The CBN has since February 2024, hiked MPR by 750 basis points, making the cost of borrowing increased to about 26.25 per cent.
Cardoso, on Tuesday, expressed optimism that the various tools deployed by the bank to tame inflation and create a stable foreign exchange market would yield the needed results in the coming months.
“The committee was mindful of the effect of rising prices on households and businesses and expressed its resolve to take necessary measures to bring inflation under control.
“It re-emphasised its commitment to the bank price stability mandate and remained optimistic that despite the June 2024 uptick in headline inflation, prices are expected to moderate in the near term,” he said.
According to Cardoso, these decisions hinged on the success of the monetary policy in addition to other measures by the fiscal authority to address food inflation