Segun Aremu, a financial expert has said the new interest rate set by the Central Bank of Nigeria can discourage the growth in the real sector of Nigeria’s Economy.
He made the remark an exclusive interview with Techeconomy correspondent, against the background of the new 26.25 percent interest rate set by Nigeria’s apex bank.
According to Aremu of the Peculiar Innovative Consulting,
“For the demand side of the capital, those who are into manufacturing, those who want to lend money to do business, there will be an increase cost on the source of their fund, hence some of them may be discouraged to get money from the market to industrialized or even do bigger businesses as it were. Because the interest cost will be quite killing for them and it will also discourage business from also scaling up”
The real economy concerns the production, purchase and flow of goods and services (like oil, bread and labour) within an economy.
It is contrasted with the financial economy, which concerns the aspects of the economy that deal purely in transactions of money and other financial assets, which represent ownership or claims to ownership of real sector goods and services.
Speaking further, he noted that ‘’if the government can see what they can do to subside or give incentives to all those who are into real development like; Agriculture, Manufacturing, and industrialization, it will enhance employment, and facilitate Economic development.
Aremu also suggested that the government should give ‘’ incentive, especially on the rate so that when they are borrowing money, the money is borrowed at a cheaper cost lower than the MPC rate, this will serve as cushioning effect.’
Recall that the Central Bank of Nigeria (CBN), Tuesday this week raised its benchmark interest rate by 150 basis points to 26.25 percent, the third straight hike this year, to control the rising prices of goods and services and to ensure stability of the naira.
After the two-day Monetary Policy Committee (MPC) meeting in Abuja, the members agreed to hold other parameters unchanged. Consequently, the CBN retained the asymmetric corridor around the MPR at +100/-300 basis points, cash reserve ratio (CRR) at 35 percent, and retained the liquidity ratio (LR) at 30 percent.
The analyst noted that, “the increase in the interest rate by the Central Bank of Nigeria (CBN, has two sides effects, number one, it have an effects on the supply side of the capital which is the investor
“For the investors is a positive one, for those who are investing in treasury bills and instrument that are safe in the financial market, they would expect that interest rate will begin to go up and that they should have more returns on their investment. ”
“But again, we are still not yet beating inflation, the inflation with our rate of returns on Nigeria financial market. As we speak everybody fund is still at negative real return.
“Any reform that is not covering inflation presupposes a negative return, Inflation is still on the high side and they are having the interest rate increased to 26.25% that is telling you that we still have about nearly minus 8 or thereabouts that is still hanging.”
‘’Anyway, it seems better than nothing, and for those investing in the Treasury bill financially safe instrument is a good one. They should expect the rate to go up and get more returns for their investment, thus that is a good one that for the supply capital,” he said.
