ANAN CEO speaks on implications of increased interest rate to 17.5%
By Matthew Denis
Following the CBN increased benchmark interest rate to 17.5 per cent last week Tuesday, Economic experts have shared their opinions regarding the implications on Nigerians.
The MPC voted to keep the Cash Reserve Ratio (CRR) at 32.5 per cent, as well as the Liquidity Ratio at 30 per cent. The CBN’s MPC also voted to keep the asymmetric corridor at +100 and -700 basis points around the MPR.
It will be recalled that in November, the MPC raised its benchmark lending rate to 16.5 per cent in a sustained push to control inflation and ease pressure on the naira.
Also in December last year, the nation’s statistics bureau said Nigeria’s inflation figure dipped to 21.34 per cent from 21.47 per cent in November after 10 straight monthly increases.
In the same month, the statistics bureau said food inflation which is one of the driving forces of Headline Inflation dropped to 23.75 per cent from 24.13 per cent a month earlier.
Speaking to our Business Correspondent on Saturday, the Registrar and Chief Executive Officer of Association of National Accountant of Nigeria (ANAN), Dr. Kayode Olushola Fasua said the implications of the decision on the economy includes but limited to contain the nation’s inflationary pressure: Persistence in the policy rate increase may lead to a further deceleration in the nation’s inflation rates.
“Loosening the rate will gravely undermine the gains of the last four increases, hence the hike in rate.
“The CBN is showing more anti-inflation resolve, and preparing the way – perhaps – for an eventual FX policy liberalisation that will require a reset to higher market rates.”
According to him, this move may however affect the Naira. It was reported late Tuesday evening that the Naira on Tuesday fell marginally by 0.08 per cent against the dollar at the official market, the same day that the Central Bank of Nigeria (CBN) raised its benchmark interest rate for the fifth straight time to 17.5 per cent.
“Expectedly, key players in the productive have argued that the increase will further hurt the productive sector and investors in the real sectors of the economy. The also argue that this move will contribute to cost push inflation.Money is a critical input in the cost of production.
“When commercial banks take loans from CBN, it’s assumed that they are buying money and the interest rate is the cost of funds. Now the interest rate for customers of commercial banks will get higher than what is previously obtainable.
“If they loan to businesses at 20 per cent, and add administrative charges and other charges, the interest rate is likely to increase to the region of 25 per cent. This will naturally increase inflation because it will drastically affect production and there’s no way any enterprise will sell below production cost.”
