The Central Bank of Nigeria on Tuesday raised the interest rate benchmark, otherwise known as Monetary Policy Rate, by a quarter of a percentage point for the third time this year amid inflation fears.

“The bank increased the Monetary Policy Rate to 10.25 per cent from 10 per cent,” the CBN Governor, Prof. Chukwuma Soludo, told journalists in Abuja after a Monetary Policy Committee meeting.
Nigeria’s inflation rate, buoyed by rising food prices and energy cost, rose to 8.2 per cent in April, the National Bureau of Statistics said on May 22.

Besides, increased allocations to states in excess of $4bn in the last five months have mounted undue inflation pressure. “The downside risks to inflation would arise if demand pressure is exerted by large fiscal injections and private expenditures beyond what the supply can accommodate,” Soludo said. The CBN last raised borrowing costs on April 1, increasing the benchmark rate to 10 per cent.
“It is difficult times for the manufacturing sector,” the President, Manufacturers Association of Nigeria, Alhaji Bashir Borodo, said in a telephone interview while reacting to the development. Interest rates offered by commercial banks to manufacturers currently hover between 21 and 22 per cent, according to MAN.

An earlier increment in the MPR from nine to 10 per cent resulted in commercial banks raising interest rates on borrowed funds from 19 to 22 per cent, Borodo said. He said that policy to raise the benchmark would further induce an increase in interest rates offered to customers by commercial banks. Borodo said an earlier petition by MAN to the CBN Governor, warning about the negative effects of raising benchmark interest rates, had fallen on deaf ears.

He said that the policy of raising the benchmark rate would further increase the cost of manufacturing and further render the sector uncompetitive.“I assure you that by Wednesday, the commercial banks will begin to notify our members on plans to raise interest rates on borrowed funds,” he said.

Borodo accused the commercial banks of frustrating the manufacturing sector with regards to high interest rates. “It is a fact that most deposits in commercial banks are private sector funds, which attract 4.5 per cent on savings. But the same banks give out the same amount to manufacturers at 22 per cent. This is not fair,” he said.

Source: Punch