Financial experts have raised concerns over the recent hawkish monetary policy stance by the Central Bank of Nigeria (CBN), which resulted in a significant increase in the interest rate to 22.75 per cent.
This move, intended to tackle inflation, has sparked fears of heightened non-performing loans (NPLs) and potential strains on financial stability indicators.
Speaking exclusively to NATIONAL ECONOMY, experts highlighted the potential downsides of the heightened monetary policy rate (MPR) on existing bank loans.
“Many businesses may struggle to meet their loan obligations in the future, potentially leading to an uptick in non-performing loan figures,” said Mr. Mike Eze, Managing Director of Crane Securities Limited.
Eze expressed skepticism about the effectiveness of the CBN’s approach in addressing the root causes of inflation, highlighting factors such as insecurity, currency depreciation, and rising energy costs.
Professor Uche Uwaleke of Nasarawa State University criticized the sharp increase in the MPR, emphasizing its adverse impact on access to credit and the cost of capital for firms.
“While the CBN’s interest rate hike aims to curb inflation, experts raise concerns about its impact on loan obligations, NPL levels, and overall financial stability,” said Eze.
Mr. Olatunde Amolegbe, Managing Director of Arthur Steven Asset Management Limited, viewed the MPR hike as a proactive measure to address inflation. He anticipated increased foreign exchange inflows and enhanced stability in the FX market but cautioned against elevated borrowing costs for corporations, potentially leading to higher NPLs.
“The effectiveness of these measures in addressing underlying inflationary factors remains uncertain, highlighting the need for comprehensive policy responses to stabilize the economy,” added Eze.
