Experts have said the successive increase in the lending rate in 2012 by the Central Bank of Nigeria will dampen credit creation in the economy.

The experts, who spoke with our correspondent on Thursday, said that the move by the MPC had increased the cost of borrowing, which was having adverse effect on the real sector.

Interesting, the CBN had identified the sector as the driver of economic growth.

They warned the CBN to ease monetary tightening, pointing out that there might be further increase in the cost of borrowing in the country.

The Monetary Policy Committee, at its meeting on November 19 and 20, 2012, had resolved to sustain monetary policy tightening.

Consequently, the Monetary Policy Rate was retained at 12 per cent, the Cash Reserve Ratio retained at 12 per cent and liquidity ratio at 30 per cent.

The MPC, an arm of the CBN, had said that the decision to further tighten monetary policy was to tackle future upward inflationary pressures, adding that the decision was also influenced by the need to support the local naira currency.

The Managing Director, Sotice Investment Company Limited, and consulting economist, Mr. Adedayo Toluwase, said that another hike in MPR in 2012 would increase the rate at which deposit money banks would lend to people.

He said, “The continuous hike in MPR has increased the cost of borrowing from banks. Already, there is credit squeeze in the economy; this action will further diminish credit creation.”

A report by FSDH Securities, obtained by our correspondent on Thursday, stated that the current 12 per cent benchmark rate was affecting the small businesses conversely.

It said, “In our opinion, it is now time for the MPC to consider monetary easing in order to boost growth and complement its effort of ensuring that credits flow to some select sectors of the economy, such as power and aviation. The activities of the small scale industries are negatively impacted by the current high interest rate in the country.”

The CBN Governor, Mr. Lamido Sanusi, had earlier said that although the committee considered that high lending rates increased the cost of finance to small and medium enterprises with its resultant adverse effect for growth and job creation, it settled for tightening in the short term.

Specifically, he noted that earlier monetary tightening decisions had helped decelerate inflation rate.

Source: Punch (written by Ademola Alawiye)