In its resolve to curb the heightening inflation in the country, the Central Bank of Nigeria, CBN yesterday, announced it will be raising its benchmark lending rate to 16.5 percent in a sustained push to ease pressure on the naira.
16.5% interest rate hike: Nigerian businesses warned to prepare for tough times
Nigerian businesses and operators in the manufacturing industry have been warned to gear up for the impending harsh conditions for businesses following the Federal Government’s decision to increase interest rates to 16.5 percent.
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This recent increment makes it the fourth time the benchmark interest rate has been hiked since May 2022 when the rate was moved upwards from 11.5 to 13 per cent.
Since then, the rate has moved to 14 percent in July, 15.5 percent in September, and 16.5 percent in November, the highest ever recorded since 2001.
While this may come as good news to the apex bank, operators in the Nigerian manufacturing sector may have to gear up for trying times as a report from CBN’s Sectoral Analysis of Deposit Money Banks’ Credit showed that the combined debts to Nigerian banks by Nigerian manufacturers increased from N4.09tn in December 2021 to N5.1tn in September 2022.
Stakeholders in the industry have argued that the increased lending rate will be unfavorable for players in the sector as they have pointed out a direct relationship between the interest hike and the high cost of production and the competitiveness of the sector thus leading to production shutdowns and higher bad loans.
Speaking on the issue, the Director-General of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, Sola Obadimu in an interview with The Punch, opined that it was useless trying to use the increased interest rates to curb the effects of inflation.
“I have been saying this, the increase in the monetary policy rate has not been working. Since they decided to raise the MPR, has it brought down inflation? It has not. And manipulations by the monetary policy committee cannot bring down inflation” Obadimu said.
According to a report by Punch, some economists have also warned the Monetary Policy Committee, MPC that there may be unintended consequences on the economy over the decision to maintain an aggressive monetary tightening stance as the effects would be an increase in non-performing loans, a destabilization of the productive sector and weakening the country’s economic growth.
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