Cardoso-economics: Nigerians React As CBN, Again Raises Interest Rate To 27.25% "To Moderate Inflation"

By: Olufemi Orunsola, Israel Adeleke 

The Central Bank of Nigeria has again raised its Monetary Policy Rate(MPR) by 50 basis points from 26.75 per cent to 27.25 per cent as part of moves described by the CBN Governor, Olayemi Cardoso, as moves “to moderate inflation” which stands at 32.15%.

OPEN TELEVISION NAIJA (OTN) News reports that the CBN Governor, Olayemi Cardoso announced the new increase following the 297th Monetary Policy Committee (MPC) meeting of the apex bank held on the 23rd and 24th of September in Abuja to review recent economic and financial developments, with a view to assessing its fiscl outlook for the year.

Cardoso revealed that, "The committee was unanimous in its decision to further tighten policy and thus decided as follows, one: raise the MPR to 27.25 per cent.

The MPC also raised the Cash Reserve Ratio (CRR) by 50 basis points from 45% to 50% for Deposit Money Banks (DMBs) and from 14% to 16% for Merchant Banks.

The committee retained the Liquidity Ratio (LR) at 30% and the Asymmetric Corridor at +500/-100 basis points around the MPR.

OTN News reports that the CBN Governor in a stand that some Nigerians have dubbed "Cardoso-economics" had maintained that the multiple hikes in interest rates effected since he assumed office of the Governor of the apex bank last year have actually helped to moderate inflation.

According to Cardoso, "There is no economic model that portends to take people out of poverty when inflation is accelerating at the level we have seen it. There is none. And for that reason, we do not intend to relent in ensuring that we bring it under control."

However, a cross section of experts and critical stakeholders in the economy have ventilated varying opinions and taken different positions about the new policy of the Central Bank of Nigeria (CBN) on increasing the interest rate to 27.25%.

OTN News has therefore thought it prudent to profile some of these feedbacks from experts and crucial stakeholders.

OTN News observes that some experts pitch their thoughts against the position of the apex bank, saying that "At this critical time, the increase in interest rates is not good for the investment climate and economic growth of the country."

Experts who take this position have explained that the cost of funds for investors would be further exacerbated, possibly well above 35% or more, as financial institutions may witness more bad debts arising from defaults in repayments by borrowers.

Contrary to the above expert opinion however, Mr.Olayemi Cardoso had earlier on Tuesday, argued that the move will help improve confidence, which will enable economic agents to plan in the medium to long term.

Reacting, a major stakeholder in the economy, the President, Nigerian Association of Chambers of Commerce Industry, Mines and Agriculture, (NACCIMA) Otunba Dele Oye, said the move will further increases the cost of funds.

“As President of NACCIMA, I express concern over the CBN’s recent monetary policy rate hike to 27.25%."

“This decision burdens businesses with higher loan costs, exacerbating their struggles and failing to curb inflation or stabilize the naira."

“We urge the CBN to engage with stakeholders for a collaborative approach, considering alternatives like targeted sector support, deficit reduction, and promoting local production.

“A reassessment of strategies is essential to ensure effective economic management and sustainable growth in Nigeria. Dialogue and innovative solutions are crucial for repositioning our economy,” he noted.

Among the experts who have swiftly reacted to the new government policy with a disagreement viewpoint is the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, who submitted that it is detrimental to investment and economic growth.

In Yusuf's words: “It is quite troubling that at a time when manufacturers, entrepreneurs and other investors in the economy are craving for a breath of fresh air, the CBN chose to tighten the noose on them by resorting to a further tightening of monetary policy.

“The latest policy choice of the apex bank is at variance with the mood of most economic players and the desire to promote economic recovery and growth.

“What manufacturers and other investors need at this time is some oxygen and stimulus, not policy measures that would worsen an already suffocating situation.” he noted.

Similarly, the President of the Association of Small Business Owners of Nigeria, (ASBON), Dr Femi Egbesola, opined that the move may lead to further contraction in the real sector of the economy.

His words: “It’s unfortunate that this is coming again at this time, when manufacturers and actors in the real sector are still grappling with high cost of doing business amongst many other challenges."

“This definitely will push up further, cost of doing business and ultimately, cost of goods and services.

“Manufacturing sector may contract more as fund liquidity and profitability will surely reduce.

“The banks or financial institutions may witness more bad debts as many lenders may find it difficult to live up to their loan obligations. This will result to banks being averse to lending to the real sector.

“The economy may likely contract further, forcing the actors in the real sector to downsize their production capacities, human resources, expenditure and further exposure to loans."

“Our competitiveness in the national, continental and global business will be further challenged as Made-in-Nigeria products will be naturally more expensive than before, amongst others.”

Reacting to the increase in MPR, the President, Association of Capital Market Academics of Nigeria, (ACMAN), Prof Uche Uwaleke, said: “My take on the recent hike in MPR is that in matters like this, the CBN usually has information that may not be at the disposal of the public.

“I want to believe the members of MPC mean well for the economy and have taken the decision to further tighten monetary policy based on strong evidence of major threats to exchange rate and inflation.

“All said, the task of taming inflation must be jointly tackled by both the monetary and fiscal authorities.

“So, the government has to play its part by controlling recurrent spending and focusing on productivity including through ramping up assistance to small businesses."

Breaking down the complex financial analysis to the level of the common man on the streets of Nigeria, OTN News correspondents who spoke to a cross section of Nigerians on the new increase in interest rates reported that many people declined to comment on the development, asking our correspondents "if the new increase in the interest rates will ultimately bring down the already hiked prices of food, hiked price of petrol and other essential commodities?".

Some respondents made remarks considered unprintable about the new policy, obviously venting their anger and utmost frustration about the current economic realities in the country.