Nigerians may lose more jobs, revenues to interest rate hike – Analysts

Nigerian analysts have warned that Nigerians risk losing their jobs and companies revenues over the recent hike in the Monetary Policy Rate to 18 per cent, up from 17.5 per cent, a decision that surprised many.

Despite inflation resisting the continuous hikes in MPR, the MPC on Tuesday doubled down, with CBN Governor, Godwin Emefiele, stating that relaxing the interest rate would erode the gains he believes the apex bank has achieved – despite no signs of CBN reining in inflation.

The CBN’s Monetary Policy Committee (MPC), which is tasked with setting the rate, is waging a war against inflation which stands at 21.91 per cent, against 17.35 per cent when the CBN started tightening the monetary environment.

The decision comes at a period analysts globally are expecting central banks to slow down their hike of MPR, used against inflationary pressures, in the face of a financial crisis rearing its head after two banks in the United States, Silicon Valley Bank and Signature Bank went bankrupt due to continuous hikes in MPR.

According to the analysts, the hike in MPR will cause credit costs to rise, as banks will lend at 18 per cent and above interest to new borrowers. Also, existing debtors will see the interest on their debt raise in line with the new rate.

Consequently, the cost of credit will be passed down to Nigerians or consumers through hikes in the prices of goods and services.

As a result, the cost of living will rise and the purchasing power of households will drop, affecting the sales of companies, as customers are unable to afford their goods or services.

Business Analyst, Kelvin Emmanuel, who is also the Chief Executive Officer of Dairy Hills, said: “MPR at 18 per cent means the cost of capital in the debt capital markets will keep rising & the end consumers will bear the rising cost of production, which on its own, is a contributor to demand pull inflation.”

“The monetary policy Committee needs to assess the impact of aligning interest to inflation yield curve might actually contribute to non-performing loan book (when looked at on a weighted average basis) can actually rise from the current 4.8 per cent above the 5.6 per cent recommended by FSS,” he wrote on Twitter.

Also addressing the CBN’s hike in MPR, Economist, Kalu Aja opined: “When banks borrow and lend, they benchmark based on the MPR. Thus, if the CBN sets MPR at 18 per cent, all commercial banks will lend 18 per cent PLUS.”