Experts: CBN’s New 27.25% Interest Rate Will Harm Investment and Economic Growth

Experts express concerns over CBN’s new 27.25% interest rate, citing negative impacts on investment and economic growth

Financial experts have expressed serious concerns over the recent hike in the Central Bank of Nigeria’s (CBN) Monetary Policy Rate (MPR) to 27.25%. They warn that the increase could severely affect investment opportunities and hinder overall economic growth in the country.

During a recent Monetary Policy Committee (MPC) meeting led by CBN Governor Yemi Cardoso, the new interest rate was announced as part of the bank’s efforts to build investor confidence and stabilize the economy. However, experts believe that the move could lead to a worsening investment climate, making it harder for businesses to access affordable funds.

A Blow to Investors

Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), criticized the decision, describing it as detrimental to investment. He highlighted how the increased interest rate could worsen an already challenging environment for manufacturers and entrepreneurs.

“At a time when the business community is seeking relief, the CBN has decided to tighten monetary policy, a move that goes against the desire for economic recovery,” Yusuf said. “Rather than policies that promote growth, this decision further stifles an economy already gasping for air.”

He emphasized that the cost of borrowing would skyrocket, with interest rates for investors likely surpassing 35%, and potentially leading to more defaults by businesses.

Small Businesses to Suffer

The President of the Association of Small Business Owners of Nigeria (ASBON), Dr. Femi Egbesola, also shared his worries about the impact on small businesses. He predicted that the policy could lead to further contraction in the real sector, which is already struggling with high operational costs.

“This policy will only push the cost of doing business higher and make goods and services more expensive,” Egbesola said. “With liquidity and profitability reducing, many businesses may struggle to repay their loans, leading to more bad debts for financial institutions.”

Egbesola warned that the real sector could see reduced production capacities and increased layoffs, further aggravating the economic challenges faced by the country.

Higher Loan Costs for Businesses

Otunba Dele Oye, President of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA), echoed these concerns, warning that the interest rate hike would lead to higher borrowing costs for businesses. He argued that this increase would only worsen the struggles of business owners, while failing to control inflation or stabilize the naira.

Oye urged the CBN to engage with key stakeholders and consider alternatives, such as targeted support for specific sectors and efforts to boost local production.

Capital Market Response

Professor Uche Uwaleke, President of the Association of Capital Market Academics of Nigeria (ACMAN), also commented on the hike, suggesting that the CBN likely acted based on information regarding inflation and exchange rate risks that the public may not have access to. However, he cautioned that addressing inflation requires both fiscal and monetary measures.

“The government must play its part by reducing recurrent spending and prioritizing productivity, especially by supporting small businesses,” Uwaleke said.

Conclusion

While the CBN’s decision to raise the MPR is aimed at stabilizing the economy, experts warn that the policy could lead to increased costs for businesses, stifling investment and economic growth. They emphasize the need for more collaborative efforts between the government, CBN, and stakeholders to ensure that Nigeria’s economic challenges are addressed without further burdening businesses.