CBN’s interest rate hike negative for businesses – NACCIMA

The Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) has expressed concern over CBN’s Monetary Policy Committee (MPR) hike to 24.75%, warning of negative impacts on Nigeria’s private sector.

In a statement on Tuesday, signed by Dele Oye, president of the association, the increase in MPR to 24.75% and Cash Reserve Ratio (CRR) to 45% will have severe repercussions on private businesses in the country.

According to Oye, the association had earlier written to the CBN’s governor on March 13, 2024, when the apex bank first raised the MPR to 22.75%.

Reiterating its position, the president said that the private sector has been sidelined from the decision-making process of the apex bank.

He also mentioned that this policy could inadvertently cause inflation, with businesses likely to increase the prices of goods and services to offset the higher borrowing costs.

He said the recent rate hikes, while aimed at controlling inflation, are likely to have the following negative consequences including an increase in the Cost of Borrowing as existing loans will incur higher interest rates, raising the cost of capital for businesses. “This scenario discourages entrepreneurial activities and expansion plans, which are vital for economic growth and job creation.” he said.

Restricted Credit Availability, according to him, with the increase in the CRR, banks’ ability to lend is further curtailed and will exacerbate the challenges faced by the private sector, which is already grappling with limited access to finance.

Pass-Through Effects on Inflation, he said as businesses incur higher interest costs, they are left with no option but to pass these costs on to consumers through increased prices for goods and services, which can contribute to inflation rather than curb it.

Stifling Economic Growth, he also said that tightened monetary conditions may lead to a reduction in investment and consumption, which are essential drivers of economic growth. This he said could potentially stifle the economic recovery and dampen the prospects for

prosperity.

The association advised the CBN governor to aim for a refined and focused strategy that directly tackles liquidity challenges in the public sector, while minimising the strain on the private sector.

The president emphasised the need for clear policy directions communicated quarterly and a strong strategy to engage stakeholders, ensuring the private sector’s input in policy making.

“Our recommendation is that the CBN should pursue a more nuanced and targeted approach, focusing on mechanisms that specifically address the liquidity issues in the public sector without placing undue burden on the private sector.

“Additionally, policy directions should be clear and communicated on a quarterly basis, with a robust stakeholder engagement strategy to ensure that the views and concerns of the private sector are considered in policy formulation.

“while NACCIMA acknowledges the CBN’s mandate to maintain price stability, we urge a re-evaluation of the current policy measures to foster a more conducive

environment for private sector-led economic growth. We remain committed to engaging with the CBN and the Ministry of Finance to find sustainable solutions that will ensure the economic well-being and prosperity of all Nigerians.” he said.