In an aggressive push to contain the nation’s inflationary pressure, the Central Bank of Nigeria on Tuesday raised its benchmark lending rate to 18%. This is coming barely two months after raising it from 16.5% to 17.5% in January.
The CBN governor, Godwin Emefiele, announced this while addressing journalists at the end of the two-day Monetary Policy Committee (MPC) meeting.
Emefiele also added that the MPC voted to keep the Cash Reserve Ratio (CRR) at 32.5 %, as well as the Liquidity Ratio at 30%, and to keep the asymmetric corridor at +100 and -500 basis points around the MPR.
All of these, according to Emefiele are part of the apex bank’s measures to address inflationary pressure.
“We believe that as we continue this process that inflation will eventually begin to trend downwards. Whether we like it or not, between now and May, or the end of the administration, we will expect that subsidy will disappear. Subsidy removal has its own implication on prices which is inflation, so we are not optimistic that prices will continue to come down because of these measures but we feel we need to continue to tighten,” he said.
He noted that the committee will be moderate in its steps to rein in inflation because it is conscious of the fact that when the rate is over-tightened, it could have negative impact on the banking sector, the financial ecosystem, and the stability of the economy.
Why should this concern you as a business owner?
This is just the second MPC meeting for the year, and lending rates are being raised for the second time. Economists are of the opinion that this move could put small businesses in a tight situation, especially since most are still grappling with challenges from the cash crunch.
The increase of the MPR to 18% means a spike in the cost of credit facilities, and small business owners seeking to access some form of credit could find themselves in really difficult situations.
Keep in mind that the World Bank recently predicted that Nigeria’s GDP Growth would decelerate to 2.9% in 2023 – barely above population growth – and remain that way till 2024. The bank added that Nigeria’s fiscal position would remain weak due to high borrowing costs, and low energy prices.
