ActionAid Nigeria has warned that the Tuesday increase in the monetary policy rate by the Central Bank of Nigeria (CBN) would lead to higher borrowing costs for businesses and small and medium-sized enterprises (SMEs) and stifle economic growth.
ActionAid, on its part, maintained that SMEs are the backbone of the Nigerian economy and that an increase in interest rate will further stifle innovation, growth and job creation of the SMEs.
The Country Director of ActionAid Nigeria, Andrew Mamedu, in a press statement, pointed out that though the decision to adjust the MPR demonstrated a proactive approach to achieving price stability, it is important to acknowledge its broader implications.
He said: “We recognise that although inflation is still rising, the month-on-month rate increase is reducing. On the other hand, the increased MPR will inevitably lead to higher borrowing costs for businesses and individuals. SMEs, which are the backbone of our economy, will face heightened challenges in accessing affordable credit.”
On the impact on vulnerable populations, he pointed out that the rising cost of living and food prices, exacerbated by higher interest rates, would further strain the already limited financial resources. He described the situation as a case of double jeopardies. “As the cost of borrowing increases, so does the difficulty in securing loans for essential needs, pushing many deeper into poverty,” he stated.
To mitigate the impacts of the increase in interest rates and inflation, ActionAid proposed that the federal and state governments step-up social protection programmes to support the most vulnerable populations, which includes expanding food assistance initiatives, providing targeted financial aid to low-income families and offering more support to other social sectors, including education, health and housing.
Mamedu also reiterated that “it is only fair that the CBN increase special credit facilities with lower interest rates to SMEs at this crucial time to ensure they continue to operate and grow”.
“Providing technical and financial support to these businesses will help them sustain their contributions to the economy. Additionally, not many people understand the implications of this hike in interest rates,” he stated.
He called on the CBN to collaborate with the National Orientation Agency (NOA) to engage the public and stakeholders on the rationale behind the current economic policies to foster understanding and confidence building.
