In apparent response to calls for a reduction in interest rate, the Central Bank of Nigeria(CBN) at its 302nd Monetary Policy Committee meeting (MPC) on September 23, announced a marginal cut in lending rate by 50 basis points, from its previous 27.5 per cent to 27 per cent. The marginal reduction in interest rate will not do much for the economy in the face dwindling income of many Nigerians and borrowing costs on manufacturers and Small and Medium Enterprises (SMEs).
Businesses are still facing severe pressure as commercial banks are reported to peg interest rates between 29 per cent and 36 per cent. The charges by commercial banks will stifle investment, slow down growth and increase the cost of borrowing. The development can hinder business expansion and reduce profitability.
Currently, the manufacturing sector and SMEs, which form the backbone of the economy, rely on loans to fund their operations and manage cash flow. When interest rate is high, the cost of capital will increase. It can also discourage business owners from borrowing money from banks. Even when they secure the needed funds, business owners will allocate more money towards interest payment, thereby reducing their ability to invest in other aspects of production. Statistics show that Nigeria holds the third high interest rate in Africa.
As of March-August, 2025, African countries with the highest interest rate include Zimbabwe (35%), Ghana (28%), and Nigeria (27.5%). Also, interest rates in Malawi, Egypt and Sierra Leone exceed 24%. Though the high lending rates are partly in response to persistent economic challenges such as surging inflation, currency depreciation and debt burdens, the expectation before last week’s MPC meeting was that, with inflation rate easing in recent months, according to data from the National Bureau of Statistics (NBS), the CBN would significantly reduced the interest rate.
A recent survey by the CBN showed that since the beginning of 2025, about 75 per cent of business owners identified high interest rate as the most pressing operational constraint. It is quickly followed by insecurity and power supply challenges. Last month’s interest rate ranged between 32% and 36%, depending on the borrower’s financial profile. While some high-profile costumers may benefit from some concessions, others are left to navigate punitive repayment terms. We believe that after months of a tight grip on interest rates, it is time to loosen the grip and lower them.
Doing so will restore investor confidence and stabilise the system’s resilience. The recent improvement in the Gross Domestic Product (GDP) supports the call for further reduction in lending rates. We say this because the rising interest rate will increase the cost of business operations.
We believe that drastic reduction in borrowing costs will boost investors’ confidence. If the monetary policy of the apex bank will meet its aims of vigorously controlling rising prices, it must curb high interest rates. There are fears that high interest rates will make loans, mortgages and credit cards more expensive.
Rising interest rate will also hamper people’s disposable income on goods and services. The present tightening monetary policy of the CBN is affecting corporate finances. The excessive bank charges, high taxes, unfavourable economic environment, unpredictable government policies, poor infrastructure, as well as uncertain political climate that companies and consumers face do not help matters. This can explain why many businesses are operating at great risk. There is no doubt that the new monetary policy will slow down economic growth and stifle ease of doing business. Indeed, the cost of doing business in Nigeria remains one of the highest in Africa. The development is not salutary for the manufacturing sector and SMEs as the liquidity squeeze is impacting on local production. Going forward, the CBN should consider further reduction of interest rates. It will increase the purchasing power of consumers and expansion of businesses and employment opportunities.
Available figures from the Central Bank of Nigeria (CBN) show that Nigeria’s money supply recorded its worst first decline in Q1 2025, falling to N110.32trillion in February from N110.94trillion in January.
The sharp drop in money supply in the banking system, especially in February this year, reflects uneasy development across both foreign reserves and domestic credit. Net foreign assets declined by 8.62 per cent to N32.34trillion down from N35.39trillion in January 2025. To stimulate economic growth, we urge the CBN to significantly reduce the interest rate.
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