Analysts Warn CBN’s 27% MPR Could Stifle Growth as Businesses Face Rising Credit Pressures

The Central Bank of Nigeria’s (CBN) decision to keep the Monetary Policy Rate (MPR) at 27 percent has sparked fresh concerns among economists and business leaders who fear the tight monetary stance may slow economic growth. While the apex bank maintains that high rates are necessary to contain inflation, analysts warn that the cost of prolonged tightening is beginning to weigh heavily on businesses and the broader economy.

CBN Governor Olayemi Cardoso, speaking after the 303rd Monetary Policy Committee (MPC) meeting, emphasized that price stability remains the bank’s top priority. However, several experts believe the committee missed a chance to support Nigeria’s fragile recovery. Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), said a modest rate cut could have offered meaningful relief to businesses without jeopardizing inflation control.

Beyond the growth concerns, analysts are also questioning the widening gap between Nigeria’s inflation rate—around 16 percent—and the benchmark interest rate of 27 percent. Thomas Amusan, CEO of Kwik Consulting, described the 10-percent spread as “economically distortive,” warning that the high cost of capital is making it harder for companies to borrow, invest, and remain productive. He noted that the disparity is redirecting lending away from the private sector toward government borrowing, where returns are safer.

Small and medium-sized enterprises (SMEs), which make up 96 percent of Nigeria’s businesses, appear to be bearing the brunt of the tight monetary climate. With lending rates now between 33 and 45 percent, many small firms say expansion or new investments are no longer feasible. “At 35 to 40 percent interest rates, growth is impossible,” said Sharon Nwosu, a manufacturing entrepreneur in Abuja. Business owners like her fear that continued tightening could erode job creation and stall industrial output.

Still, some economists argue the CBN is playing it safe in a volatile environment. Dr. Hassan Oyeleke, a macroeconomic analyst, noted that easing too soon could worsen inflation. He said maintaining the rate may boost investor confidence and support exchange-rate stability until inflation shows a decisive downward trend. However, CBN data suggests the high-rate environment is cooling private-sector lending, which fell from N75.9 trillion in August to N72.5 trillion in September, even as government borrowing climbed. The policy, critics say, is increasingly favoring government financing over productive economic activity.

source: nairametrics