Senate asks CBN to review rate hikes, cites productivity concerns

…Wants $2.4bn FX backlog resolved amid firms’ losses

The Senate Committee on Banking, Insurance and other Financial Institutions has urged the Central Bank of Nigeria (CBN) to review its interest rate hikes, warning that economic productivity cannot be enhanced in a high interest rate environment where access to credit is constrained.

Mukhail Abiru, chairman of the Senate committee, gave this advice during an interactive session with a delegation from the CBN led by Olayemi Cardoso, its governor, on Wednesday.

In November, the CBN raised its benchmark interest rate by 25 basis points to 27.50 percent in its fight against rising inflation, marking the sixth increase in 2024.

Expressing his concerns, Abiru said, “It goes without saying that productivity cannot be enhanced in a very high interest rate environment where access to credit is equally constrained. This is why we think the bank should devote more time to assess the impact of sustained rate hikes not only on the general price level but also on the overall economic activity.”

Further expressing concerns about rising inflation, the chairman urged the apex bank to consider deploying monetary policy tools to support productivity, noting that traditional tools for maintaining inflation are weakened by huge cash circulating outside the banks.

“This is without prejudice to the banks’ primary mandate of maintaining price stability and its instrument of independence”, he said.

Abiru highlighted the role of increased output, especially in the agricultural sector, in moderating inflationary pressures dominated by the food index.

To further support productivity, he recommended that the bank should consider resuming targeted interventions to SMEs through developing financial institutions, and other mechanisms, as part of efforts to achieve the $1 trillion economy.

He emphasised the importance of synchronising monetary and fiscal policies to achieve desired macroeconomic goals.

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The chairman also raised concerns about the persistent cash scarcity in the economy despite assurances by CBN to address the challenge. He criticised the difficulty in accessing cash from ATMs, including those located within the bank premises, as well as the prevalence of dirty and mutilated naira notes in circulation.

He also condemned excessive bank charges, delays in resolving customer complaints, and the high rate of failed online transactions, all of which, he noted, undermine public confidence in the banking system.

Abiru also raised concerns about low interest rates on savings deposits despite an increase of over 875 basis points in the Monetary Policy Rate (MPR) since February, which has now risen beyond 35 percent.

Abiru further urged the apex bank to clear the outstanding $2.4bn foreign exchange (FX) forward contract noting that the Senate has received petitions from, small, medium, and large enterprises, and particularly manufacturing companies who claim they are experiencing operating losses, job losses, and even losses to government, tax revenue.

The organised private sector (OPS), in September, reported that firms have incurred N1.5 trillion in losses in the last six months due to delays in honouring the outstanding FX forward contracts.