Tough Time Ahead For Brand Owners As CBN Hikes Interest Rate To 18.5%

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CBN

Brand owners, manufacturers, and consumers in Nigeria will face a higher cost of sourcing funds as the Central Bank of Nigeria (CBN) has increased the monetary policy rate (MPR) to 18.5 per cent.

This decision was announced on Wednesday by the CBN governor, Godwin Emefiele, after the policy-setting committee meeting at the CBN headquarters in Abuja.

The development is the third consecutive time the apex bank would be raising the MPR, which determines the interest on lending by financial institutions to borrowers.

Due to this development, commercial banks would have to hike lending rates to customers, which may eventually end up higher than 30 per cent.

Speaking on the new development, Emefiele noted that the Commitiee’s considerations focused its attention not only on the inflationary trends in most major economies but also on the reported impact of policy rate hikes aimed at reining in inflation on financial system stability in the global financial system.

He said the MPC took time out to discuss the recent bank failures in the US and Switzerland, an event that occurred following the persistent interest rate hikes in the US, and how this has adversely impacted the broad portfolio of banks in the US.

“It noted that whereas MPR was increased by 500 basis points in Nigeria, from 12.5% in 2022 to 17.5% in January 2023, the Financial Soundness Indicators (FSIs) in Nigeria show that the Nigerian banking system remains resilient due largely to the stringent prudential guidelines put in place by the CBN which has resulted in a strong build-up of not only the Cash Reserve Ratio (CRR) in Nigeria but also the Liquidity Ratio and Capital Adequacy Ratio.

“In the light of these strong FSIs, MPC was comforted that its various decisions in increasing MPR have had a moderate impact on inflation, given that the rate appears to have plateaued in Nigeria.

“The Committee’s major considerations at this meeting, therefore, focused on arriving at key policy mechanisms to shield the economy from emerging shocks from the global economy, as well as sustain its focus on domestic price stability.

“Headline inflation, in the view of members, remained high with increased expectations of price development, due to the perennial scarcity of PMS and ongoing discourse around the removal of fuel subsidy. With the prices of other energy products also rising, members stressed the importance of addressing price development.

Commenting on the hike, a development consultant, Celestine Okeke while speaking to The ICIR said “This is not healthy for businesses to thrive. This has shown that the economy is in dire need of overhaul since it has failed to support funds for businesses. How can businesses survive this kind of rate hike? CBN has been doing this without results.”

He stressed that it was becoming more expensive to do business in Nigeria, saying, “Those who borrowed money would pay higher. Nigeria’s stocks are expected to experience low yield as a result of the rate hike.”

Justifying the rising inflation rate, the MPC blamed the high energy cost and challenges around the supply chain, among others, which are beyond the reach of the CBN.

Emefiele said, “The current trend in price development would continue to be monitored by the bank with greater collaboration with fiscal authority to address the drivers of inflation.”

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