CBN’s interest rate hike will slow economic growth – Analysts

The Central Bank’s recent interest rate hike will slow economic growth and contract the real sector in 2024, many analysts have said.

According to the FBN Quest daily note, the hike will slow economic growth and reduce consumer spending.

“Ultimately, the impact on the general economy could be a potential slowdown in economic growth, with consumer spending suppressed, and a decrease in business investments,” the report stated.

On Tuesday, the interest rate was hiked further by 150 bps to 26.25 percent from 24.75 percent.

Biodun Adedipe, Chief consultant, Biodun Adedipe Associates, stated that the rate hike would create more troubled loans in the banking sector, and increase the cost of doing business among SMEs.

“For banks, the more expensive loans are, the more troubled loans you create. Banks will not be creating the volume of loans that can drive output, and people who are already stuck with the banks will see a significant increase in their cost of doing business and selling prices,” he said.

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Also, Joseph Nnanna, Chief Economist, Development Bank of Nigeria, said that the CBN would not achieve their inflation target of 21 percent, and continued interest rate hikes would impede GDP growth for 2024.

“The CBN might not achieve their inflation target of 21 percent this year but may bring the rate down to 24.5 or 28 percent if the hike continues. However, the rate hike has a signalling effect on the fiscal authorities. It is now left to the fiscal side to respond to these signals. They need to improve fiscal discipline and prioritise spending to improve growth. I suspect that real GDP will not get to 3.3 percent,” he said.

However, Ayodele Akinwunmi, Relationship Manager of Corporate Banking at FSDH Merchant Bank, said that the rates would translate into higher yields on investments, attracting foreign investors into the Nigerian market.

“That will impact other yields in the market, which may attract foreign investors to the Nigerian market. In terms of the yields, the treasury is doing better than some of the other fixed-income securities, which may also lead to portfolio investment flows to Nigeria, thereby increasing the stock of foreign exchange in Nigeria, which may lead to an appreciation of the value of the currency,” he stated.

Finally, Ayokunle Olubunmi, Head Financial Institutions Ratings, Agusto & Co., also said “We anticipate an increase in the lending rates of most banks which would moderate the volume of credit disbursement by the financial institutions. The higher MPR could also drive a higher level of impairment in the loan book of the financial institutions.”