The former President of Chartered Institute of Bankers of Nigeria, CIBN, Prof Segun Ajibola, in an interview with DAILY POST on Monday, stated that a disconnect exists between the MPR and the reality of rates in the banking sector.
He said Nigerians may likely experience constraints in the second quarter of 2023 owing to the current prevailing economic conditions as the burden of increased interest and inflation rates would definitely be passed to customers who will have to pay higher prices for goods and services.
While also explaining that investors in Nigeria hardly make a profit due to the high cost of production, he further opined that the likely removal of fuel subsidies by May 2023, if well managed, would be a defining factor at the end of the second quarter of the year.
He said: “The MPR is a reference rate; it becomes compelling if any DMBs approach the apex bank for a loan. Nigeria’s response rate has been very slow, deposit rates are low, and the loan interest is relatively high. There is still a disconnect between MPR and the whole rates in Nigeria.
“The inflation here in Nigeria is cost-pull, not demand-pull. An average manufacturer is incurring more cost, which is usually passed on to the customers. If you now relate the MPR to inflation, the real interest rate is still negative. In other words, the average investor in Nigeria is losing.
“We are now talking about the likely removal of fuel subsidies, but the effect can be managed to benefit the economy if the refinery is working, if Dangote’s private refinery is working, at the end of the day, there would be a silver lining. With CBN addressing the issue of the naira crisis, small-scale businesses would bounce back in due time.”
On his part, the Director of the Centre for the Promotion of Private Enterprise, Muda Yusuf, disclosed that the cash crisis and post-electoral rhetoric would impact the economic outlook of the second quarter of 2023.
He said: “The lingering effects of the cash crisis and the post-election agitations and rhetoric will impact the economic outlook for the second quarter. But we should see an elevated confidence level after the new administration’s inauguration at the centre. A lot depends on the quality of policy signalling by the new administration.
“Pronouncements on the administration’s commitment to key reforms would impact investors’ sentiments. The quality of the economic team will also be a significant factor.”
Yusuf added: “The hike in MPR and corresponding effects on interest rates will negatively impact operating costs of businesses that have debt exposures to the commercial banks. But the bigger issue would be the general economic policy direction of the new administration.”
The Governor of the Central Bank of Nigeria, Godwin Emefiele, last week raised MPR to 18 per cent from 17.5 per cent to tame inflation. This is even as Nigeria’s inflation rates have jumped to 21.91 per cent according to the National Bureau of Statistics’ recent February’s data.