• Wednesday, October 09, 2024
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OPS reacts to new interest rate, says it may worsen bad loans, stifle production

OPS reacts to new interest rate, says it may worsen bad loans, stifle production

The Organised Private Sector, representing interest groups in the private sector has expressed fears that the Tuesday interest rate hike of the Monetary Policy Committee of the Central Bank of Nigeria may worsen bad loans in various deposit money banks.

The MPC for the fifth time this year voted to increase the monetary policy rate, which measures the benchmark interest rate, to 27.25 per cent. This was announced by Olayemi Cardoso, Governor of the apex bank, after the 297th Monetary Policy Committee meeting in Abuja.

Cardoso explained that the committee members unanimously decided to further tighten monetary policy.

Read also: Proliferation of loans, less impact on growth and development in Nigeria

This new rate, a move that stunned the financial markets, is an increase of 50 basis points from 26.75 per cent announced by the apex bank in July 2024.

Punch report recalls that the new rate reflects an 8.5 per cent increase in interest rates under the current leadership, which took office a year ago.

“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 Punch report quotes the apex bank governor.

But in his reaction, Femi Egbesola, National President of the Association of Small Business Owners of Nigeria, according to the Punch report said it was unfortunate that the increase was coming again when manufacturers and actors in the real sector were still grappling with the high cost of doing business amongst many other challenges.

He said, “This definitely will push up further the cost of doing business and ultimately, the cost of goods and services. The 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 in banks being averse to lending to the real sector.”

Egbesola further noted in the report that the economy may likely contrast further, forcing the actors in the real sector to downsize their production capacities, human resources, expenditure and further exposure to loans.

Also reacting, according to Punch report, Dele Oye, President of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, , expressed concern over the CBN’s recent monetary policy rate hike to 27.25 per cent.

He said, “This decision burdens businesses with higher loan costs, exacerbating their struggles and failing to curb inflation or stabilise 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.

The Centre for the Promotion of Private Enterprise said the CBN’s Monetary Policy Committee’s decision to raise the Monetary Policy Rate to 27.25 per cent was damaging to investment and economic growth.

Read also: Nigeria’s pricey loans stall world-class healthcare dream

Director of the CPPE, Muda Yusuf, in the Punch report assessed that the MPC’s decision clashed with most economic players and the private sector’s desire for economic recovery and growth.

“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,” Yusuf said in the report.

The CPPE noted that instead of a tightening of the MPR, “manufacturers and other investors need, at this time, some oxygen and stimulus, not policy measures that would worsen an already suffocating situation.”

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