Rate Hike: Experts Lament Imminent Decline In Production, Profit

Experts expect increased cost of domestic borrowing, especially, from the banks, as the Monetary Policy Committee (MPC) raised benchmark interest rate by 50 basis points from 17.5 per cent to 18 per cent at the end of its two-day meeting yesterday.

Speaking on this development, the head of Global Markets at Parthian Partners, Ronke Akinyemi, said: “we expect to investors to demand higher returns as inflation remains elevated, which will in turn lead to higher cost of domestic borrowing by the government and corporates and increased yields in the fixed income space.”

Similarly, the managing director of Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf said, the victims of the continuous hike in the monetary policy rate are the investors in the real economy and other entrepreneurs in the economy.

According to him, increase of the MPR to 18 per cent means an additional burden on business as it will result in a spike in cost of credit.

“Production costs would increase, sales will drop, profit margins will shrink and investors’ confidence will be negatively impacted. The reality is that ways and means financing, high energy cost, and foreign exchange challenges are much bigger factors in the inflation equation,” he stressed.

Yusuf said, the CBN should pay greater attention to financial system stability at this time, saying, recent developments in the global financial system underscores the imperative of cautious interest rate hikes.

“The CPPE is concerned about the stifling effect of the high CRR of 32.5 per cent on the banking system stability and financial intermediation role of the banking system,” he pointed out.

Meanwhile, the group executive chairman, Lancelot Group, Mr Adebayo Adeleke, while reacting to the apex bank’s comment on prioritising depositors’ money ahead of shareholders’ concerns, noted that, “there is a warped reasoning in CBN that Shareholders are not an integral part of the economic landscape.”

According to him, “Mr Emefiele appears to be ignorant of the fact that over N30 trillion market capitalisation today is a measure of shareholders’ investment in the economy today. He is also oblivious, or pretends to be oblivious, of the fact that more than 60% of the so-called depositors’ money belongs to shareholders and shareholders’ companies.”

This regulatory attitude of treating shareholders as expendable item, he said, is partly responsible for the narrow-visioned approach to solving issues.

“That unguarded statement sends a wrong signal to foreign investor who may want to invest in our banking eco-system that the regulator, and by extension the government, cares less about them and their investment. That they as catalysts of capital formation and economic development are held in high contempt.”

A renowned economist, Prof. Uche Uwaleke stressed that, the MPC is still concerned about rising inflation and the pressure in the forex market against the backdrop of its primary mandate of maintaining price stability.

To him, “I had expected MPC to maintain a hold position considering the significant drop in currency in circulation occasioned by the currency redesign policy and the fact inflation rate actually decelerated month on month between January and February 2023.

“The adverse impact of the recent cash scarcity on productive activities as well as the conclusion of election season should have provided justification for a hold position.

“That said, I think that the increase in the MPR by 50 basis points is a signal to financial markets that the CBN has begun the process of rate-hike pause and I expect that a complete halt in policy tightening will most likely happen at the next scheduled meeting of MPC in May. This is necessary in order to stimulate economic activities and create job opportunities.”