The Central Bank Of Nigeria (CBN) yesterday hiked its Monetary Policy Rate (MPR) to 15.5 percent, the highest ever in 20 years.
The increase came at the end of its Monetary Policy Committee meeting, which started on Monday in Abuja.
CBN Governor Godwin Emefiele, who announced the new rate, said it was, among others, intended to rein in inflation, which now stands at 20.52 percent.
Members of the MPC also agreed at the meeting to raise the Monetary Policy Rate (MPR) to 15.5 percent; retain the asymmetric corridor at +100/-700 basis points around the MPR; increase the Cash Reserve Ratio (CRR) to a minimum of 32.5 percent, and retain the Liquidity Ratio at 30.0 percent.
Part of the implications of the measures is that the cost of borrowing will go up to reflect the new MPR of 15.5 percent and the minimum cash reserve that banks will keep with the CBN as liquidity will jump to 32.5 percent of their total deposits, as against the previous rate of 27.5 percent.
Emefiele also threatened that banks that fail to voluntarily fund their accounts by tomorrow to match the new CRR of 32.5 percent would be penalized. The measures have, however, met with varied reactions.
The implication of the measures is the fear that raising the MPR will directly impact the fortunes of the manufacturing sector. The direct fallouts of the measures, among others, are loss of jobs and non -recruitment of additional workforce.
Experts also harped on the increasing disparity the CBN measures would cause on the foreign exchange rate.
One of the experts, Muda Yusuf of the Centre for the Promotion of Private Enterprise, described the developments as “a double whammy” for manufacturers.
He said: “We must forget that businesses are already grappling with so many problems, especially because of the high exchange rates, forex scarcity, currency depreciation, cost of diesel, and insecurity.
“Cost of operation will go up and inflation will still remain high if not higher. What guarantee does the CBN have that this increase in interest rate will curb inflation?
“Definitely, the CBN has not considered if we have borrowed money from the banks to invest. So, it’s not good news at all that CRR increased to 32.5 percent.
“What it also means is that the increase will further tighten the financial system because 32.5 percent CRR is one of the highest in the world.
“It is going to affect what you call financial intermediation, which is the major function of banks.
“What the CBN should have done is to also reduce its own fiscal deficit financing. That’s an even bigger problem for liquidity. Is it not the CBN that is providing the ways and means it is almost N20 trillion now?
“Things like this have very serious implications for inflation. I think that it is essential that CBN addresses this because it is not within the domain of the commercial banks or the banking systems, but within the remit of the CBN and the fiscal authorities.
“CBN is talking as if it is only CBN tools that can solve the problem of inflation whereas it is just causing unnecessary problems for investors who are indebted to the banks and to those who want to borrow money.”
But Emefiele, who stressed CBN’s resolve to implement the measures, said: “Whether you raise the rate or not, what will happen is that consumption and investment will be affected because the purchasing power of the consumer will derail or completely dissipate.