“It Is Not Working”: Expert Speaks As CBN Raises Interest Rate Again

“It Is Not Working”: Expert Speaks As CBN Raises Interest Rate Again

  • The Central Bank of Nigeria, through its Monetary Policy Committee (MPC), announced a new interest rate
  • 150 basic points have increased the new benchmark interest rate as CBN looks to fight inflation
  • Uche Uwaleke, professor of finance and capital market, explained in an exclusive chat with Legit.ng the impact of CBN's latest MPC decision

Legit.ng journalist Dave Ibemere has over a decade of business journalism experience with in-depth knowledge of the Nigerian economy, stocks, and general market trends.

The Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) has increased the benchmark interest rate to 26.25% from 24.75%.

The new rate is a 150 basis point increase and also the third consecutive hike implemented in 2024 by the CBN to fight inflation.

CBN sets new interest rate
CBN's MPC raises interest rate again Photo credit: cenbank
Source: Getty Images

Olayemi Cardoso, the Governor of the CBN and Chairman of the MPC disclosed the new interest rate at the end of the 295th MPC meeting held in Abuja on Tuesday, May 21, 2024, Punch reports.

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The CBN, however, retained the Cash Reserve Ratio (CRR) of Deposit Money Banks (DMBs) at 45% and put the Asymmetric corridor around the MPR at +100 and –300 basis points.

Expert reacts to CBN MPC decision

Reacting to the latest CBN decision, Uche Uwaleke, a professor of finance and capital market and former finance commissioner in Imo state, told Legit.ng that the CBN's decision could negatively impact the stock market.

He explained that the interest rate increase, which aims to curb inflation, could prompt investors to rebalance their portfolios in favour of fixed-income securities, leading to a potential downturn in stock market performance.

His words:

"The hike in the MPR by a further 150bps will most likely have an adverse consequence on the equities market given the inverse relationship between interest rates and equities market returns.

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"It has the potential of triggering portfolio rebalancing in favour of fixed income securities.
If I were a member of the MPC, I would have voted for a hold position as the aggressive policy rate hike is taking a toll on output. Production is stiffled because of very high cost of funds.
"Moreover, the seeming over reliance on the MPR as a tool to tame inflation does not appear to be making any meaningful impact due to the significant non-monetary factors driving inflation in Nigeria such as high cost of energy, transport as well as insecurity in the food-belt regions of the country."

CBN releases new BDC operational guidelines

Earlier, Legit.ng reported that the Central Bank of Nigeria (CBN) has announced rules that will end the sale of dollars on the street in Nigeria.

The New guidelines issued for BDC operators are aimed at streamlining their operations and enhancing regulatory oversight.

Read also

Good news: Nigeria’s Foreign reserve rises as naira gains after CBN sells dollar to banks, others

CBN hopes these measures will help create stability for the naira and transparency of the foreign exchange market.

Source: Legit.ng

Authors:
Dave Ibemere avatar

Dave Ibemere (Senior Business Editor) Dave Ibemere is a senior business editor at Legit.ng. He is a financial journalist with over a decade of experience in print and online media. He also holds a Master's degree from the University of Lagos. He is a member of the African Academy for Open-Source Investigation (AAOSI), the Nigerian Institute of Public Relations and other media think tank groups. He previously worked with The Guardian, BusinessDay, and headed the business desk at Ripples Nigeria. Email: dave.ibemere@corp.legit.ng.

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