CBN Rate Hike will Shrink Output – Capital Market Association

Elizabeth Christopher

Last updated Feb 27, 2024

The President, Capital Market Association of Nigeria, Professor Uche Uwaleke says the 400 basis point increase in interest rate by the central Bank of Nigeria will shrink output and impact the economy negatively.

Prof. Uwaleke will reacting to the decision of the Monetary Policy Committee said “jerking up the MPR by 400 basis points in one fell swoop is simply an overkill.

“Why not by not more than 200 basis points since they have another opportunity to meet next month and review impact?”

“They didn’t stop at MPR, they also jerked up the CRR to 45% which at the previous level of 32.5% was among the highest in Sub Saharan Africa.”

According to him, the move contradicts CBN Governor’s assurances that “policies of the bank would be evidence-based. Which empirical results support this aggressive move?”

“The implication is that for every deposit in the bank, CRR takes 45% of it while Liquidity ratio takes 30%. So it is only 25% of the deposit that banks can lend! This has negative implications for access to credit, cost of capital for firms, cost of debt service by the government and asset quality of banks,” he argued.

“Expect banks to quickly reprice their loans with negative consequences for non performing loans and financial soundness indicators.

“By this,… in a bid to crash elevated inflation which by the way has numerous non monetary factors driving it, output is bound to shrink”

“So, expect lower GDP numbers especially from Agric and Industry sectors as well as a surge in unemployment levels. This is not a welcome development,” he added.