The Monetary Policy Committee of the Central Bank of Nigeria has raised the benchmark interest rate from 15.5 to 16.5 per cent in order to rein in inflation and maintain economic stability.

Speaking at the end of a two-day Monetary Policy Committee meeting on Tuesday in Abuja, the CBN Governor, Godwin Emefiele, said the committee voted to raise the rate to 16.5 per cent while retaining the asymmetric corridor of +100/-700 basis points around the benchmark interest rate, also known as the monetary policy rate.

He said the MPC also voted to retain the cash reserve ratio at 32.5 per cent and the liquidity ratio at 30 per cent.

“The Committee’s choices were on whether to further hike rates or pause for the impact of the last three rate hikes to continue to feed through the economy. At this MPC, therefore, the options considered were primarily to hold or further tighten the policy rate. The option to loosen was not considered as this would gravely undermine the gains of the last three rate hikes,” Emefiele said

This was the fourth time the committee would be raising the benchmark interest rate since May when the rate was moved upwards from 11.5  to 13 per cent. The rate has since increased to 14 per cent in July, 15.5 per cent in September, and to 16.5 per cent in November.

“At this meeting, the MPC was concerned that the global inflationary pressures have continued to trend higher and financial markets were also facing challenges. It observed that this was indeed the trend in Nigeria, with inflation attaining 21.09 per cent in October, 2022,” he said.

Inflation has risen from 15.92 pr cent in March to 21.09 per cent in October, due to cost of production, demand and external factors.

Manufacturers’ N5.1tn debt

Operators in the nation’s manufacturing sector saw their combined debts to Nigerian banks rise from N4.09tn in December 2021 to N5.1tn in September 2022, according to the CBN’s Sectoral Analysis of Deposit Money Banks’ Credit.

This showed that they borrowed the sum of N1.01tn between December 2021 and September 2022.

With the increase in debts, stakeholders have maintained that the current double-digit lending rate was unfavourable as it had a direct impact on the cost of production and the competitiveness of the sector.

Members of the organised private sector and economists have however reacted to the MPC’s  interest rate hike, saying it will lead to production shutdowns and higher bad loans.

The former President of the National Association of Small Medium Enterprises, Mr Degun Agboade, said the association was complaining about the old rate before the current hike.

“We are in a worse situation. Nothing has improved in terms of infrastructure. In fact, the infrastructure is getting worse. You can’t move on the roads; diesel price has moved up, and there are a whole lot of problems. In the midst of that, you still raised the interest rate? That is adding insult to injury.”

A professor of Economics at Covenant University, Ota, Jonathan Aremu, said the decision of CBN’s MPC reflected an economic theory that stated that for an economy to remain robust, the quantity of money in circulation must reflect the volume of production and consequently the volume of trade/transactions.

In a recent interview, the Deputy-President of the Lagos Chamber of Commerce and Industry, Dr Gabriel Idahosa, had criticised the MPC’s rate hikes.

Idahosa said, “Our own economy cannot stand this kind of rate hikes, where you have unemployment and inflation. Manufacturers are not able to cope with current interest rates because of the cost of production. Diesel alone is sending many of them out of business. If you now add a high-interest rate, it’s not good for businesses that are already suffering from those other issues of inflation and power supply. They are supposed to do it on paper because the monetary policy says if you have inflation, you should increase interest rates.”