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Interest Rate Hike Will Lead To Bad Loans, Weaker Naira – OPS - INDEPENDENT
LAGOS – The Organised Private Sector (OPS) and the labour movement have expressed concerns over the recently announced hike in the country’s interest rate, stressing that the increase in the Monetary Policy Rate (MPR) would further create non-performing loans, and by extension, bad loans.
Both groups made the declarations to Daily Independent, while reacting to the increase in the Monetary Policy Rate by CBN, as the Governor of the apex bank, Olayemi Cardoso, insisted that the country would begin to see the effects of the current monetary policies by the first quarter of 2025.
CBN raised Nigeria’s interest rate by 25 basis points to 27.50 per cent in November from 27.25 per cent in September 2024.
Cardoso disclosed this during a press briefing on Tuesday after the 298th MPC meeting in Abuja.
“The committee was unanimous in its agreement to raise the monetary policy rate by 25 basis points to 27.50 percent,” he said.
Dr Femi Egbesola, the National President of the Association of Small Business Owners of Nigeria, while speaking on the development, said: “The concurrent increase in the Monetary Policy Rate would continue to increase the borrowing cost for businesses and individuals, adding that this would no doubt lead to more non-performing loans, loan defaults, and bad loans.
“It will continue to hamper business growth and also shrink the economy, such that it will push inflation higher, reduce consumer spending, and ultimately lead to low profitability for businesses and eventual job losses for workers.
“The challenge of inflation in Nigeria is not just a monetary problem. Other problems such as corruption and mismanagement in the fiscal sector are also causing inflation. So a raise in MPR may just not be the only and best approach to arrest inflation.”
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Cardoso also announced that the Cash Reserve Ratio was retained at 50 basis points, from 45 per cent to 50 per cent for deposit money banks and from 14 per cent to 16 per cent for merchant banks.
Also, the committee retains the liquidity ratio at 30 per cent and the asymmetric corridor at +500/-100 basis points around the MPR. Similarly, the committee retained all other monetary policy decisions.
An official of the Nigeria Labour Congress decried the MPR hike, stressing that it would cause a significant increase in the cost of borrowing from commercial banks.
“This decision, intended as a tool to combat inflation, is expected to have profound implications for the economy, particularly on production and investment,” the official who spoke in confidence due to lack of authorisation to speak on the matter, stated.
He warned that this move could exacerbate production challenges, as manufacturers face higher costs of financing their operations.
The NLC official stated that Nigeria’s inflation, largely driven by structural factors such as energy costs and exchange rate instability, may not significantly ease with a higher MPR.
He further highlighted that the country’s inflation is primarily cost-push, rooted in elevated production expenses rather than excessive money supply.
“This hike will amplify the cost of funds for manufacturers, pushing production costs higher. In a country where energy prices and raw material imports are already expensive, this policy risks making goods unaffordable and increasing consumer resistance,” he noted.
On his part, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said the Monetary Policy Committee’s continued hawkish stance has sparked concerns as Nigeria’s third-quarter GDP report highlights declining growth in critical sectors.
