“Purely Misguided!”: Nigerians react as CBN increases interest rate to combat inflation

• The announcement of a further increase in the interest rate has got Nigerians talking
• Some say the CBN should focus on revaluing the naira rather than interest rate hike
• Many lament the implication of further rate hikes on businesses and the broader economy

The further hike of the interest rate by the Central Bank of Nigeria (CBN) after the 298th meeting of its Monetary Policy Committee (MPC) has generated reactions from Nigerians, businesses, trade organisations and economists.

CBN governor Olayemi Cardoso announced that members of the MPC unanimously voted for a further interest rate hike by 25 basis points to 27.50 per cent from the previous rate of 27.25 per cent.

The CBN said the rate hike, the sixth time this year, is aimed at curbing surging inflation, which reached 33.88 per cent in October 2024.

However, the news of the rate hike generated reactions across the board, with many citing the economic implication of further monetary tightening.

Revaluing the naira should be CBN’s focus

In reaction to the news, a finance expert and CEO of Wealthgate Advisors, Mr Adebiyi Adesuyi, advised the CBN to revalue the naira rather than increase interest rates.

Adesuyi noted that an interest rate increase will hurt businesses as it will translate into increased cost of funds for businesses.

He said, “The interest rate hike will not result in a good economic outcome in Nigeria. Theoretically, higher interest rates are expected to reduce the inflation rate. This approach works well in economies that have supportive infrastructure and appropriately valued currency.

“Nigeria is different. The inflation in Nigeria is traceable to the undervaluation of the naira, thus we have imported inflation in view of our overdependence on imported consumer and producer goods.

“The other major cause of rising inflation in Nigeria is the cost of fuel which has tripled over the last one year. This has affected the cost of moving foods and other agricultural commodities from the farms in the North to different markets in the country. The distribution of manufactured goods from factories to the markets is also affected by the high cost of fuel.

“That is why I strongly believe we must find a way of revaluing our currency and work on petroleum price if we really want to address the issue of inflation.”

Nigeria’s economic structure doesn’t support a rate hike approach

In an interview, the CEO of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said the distinct economic situation of Nigeria doesn’t allow for the straightforward application of the textbook rule of an interest rate hike as an inflation-curbing measure.

He called for the adoption of a nuanced and local approach to taming inflation.

Dr Yusuf said, “The primary function of the central bank is to ensure price stability using instruments such as the monetary policy rate, cash reserve ratio and liquidity ratio. However, our economic structure does not support the straightforward application of these tools.

“Unlike Western economies where credit drives demand, our economy has limited access to credit. How many people here have credit cards or can even approach banks for loans, especially at these high interest rates? We must adapt to our unique environment instead of relying solely on external models.

“We must reduce over-reliance on textbook solutions and tailor our policies to the realities on the ground. The current situation is burdensome. We need relief, not further tightening.”

Persistent monetary tightening will discourage borrowing –Analyst

A Public policy analyst, Lakunle Hammed, said the CBN’s tight monetary stance has negative consequences as it will discourage borrowing.

He said, “Continuous hikes in interest rates discourage borrowing, limiting access to loans for businesses and individuals. This stifles economic growth and recovery efforts.”

Hammed highlighted the need for fiscal responsibility.

He said, “Curbing excessive government spending is crucial to stabilizing the economy and supporting local producers.”

Nigerians react to interest rate hike on social media

Following the announcement, Nigerians took to social media, especially X, to express disappointment with the CBN’s approach.

They noted that further rate hikes don’t bode well for businesses and individuals.

@ennyola0015 said, “CBN raises interest rate yet again 😂 This traditional approach to keep raising interest rate is more like textbook stuff, it doesn’t work in the real world. Purely misguided! I propose that government should focus on reducing excessive spending and instill fiscal discipline. This lavish spending creates cash surge. Rising interest rate in this manner will always discourage borrowing and hinder business and individuals from accessing loans that could stimulate economy.”

@lekeolofin tweeted, “CBN should just tell new investors to look away frm borrowing money frm banks. In this economy, how cany start-up business break even with 27.5% interest? For existing entrepreneurs they will only be working to meet up in paying loan. This is a very hard time 4 business owners.”

@fibre005 wrote, “Government propaganda machine says both inflation and unemployment has improved, but CBN does not believe them so they decided to increase interest rate to frustrate the growth. How amazing.”

@firsatina said, “Increased interest rates mean higher borrowing costs for individuals, making loans, credit cards and mortgages more expensive… the tunnel is dark .. no escape route anytime soon!!”

@Htchjgyhjg tweeted, “Davido’s statement didn’t sacre investors –bad government policies did. CBN has raised interest rates 4 times already, at 30%, stifling businesses, inflation and inconsistent monetary policies. Let’s face the facts—investors look at macroeconomic stability, not celebrity comments.”

Beyond increasing MPR, how else can CBN tame inflation?

Meanwhile, TheRadar reported that at its 296th Monetary Policy Committee (MPC) meeting, the Central Bank of Nigeria (CBN) increased the Monetary Policy Rate (MPR) by 50 basis points to 26.75 per cent from the May rate of 26.25 per cent to tame inflation.

TheRadar highlighted other ways the apex bank can tackle inflation beyond increasing interest rates, which some Nigerians describe as ‘textbook economics.’