‘ Further rate hike can trigger loan default, crash stock market’

AN economist, Johnson Chukwu, has warned that any attempt to raise the interest rate further would not only increase the rate of default arising from an inability to service loan obligations but may also trig ger a stock market crash.

With the interest rate currently at 18.75 per cent and the inflation rate at 28.9 per cent, Chukwu said another hike in interest rate would increase the cost of borrowing, which would negatively impact the ability to generate cash to meet debt obligations, especially for sectors growing at a slower rate.

At the 10th National Economic Outlook of the Chartered Institute of Bankers of Nigeria ( CIBN), Chukwu insisted that there are other factors besides money supply fueling inflation hike, which must be tackled.

The factors, he said, include insecurity, which has weakened food pro - duction, depreciation of the naira, increasing cost of importing energy input and highways and means. He wondered why the five largest economic sectors ( agriculture, manufacturing, trade, ICT and construction) accounting for 73.6 per cent of the GDP have continued to underperform, noting that slow economic growth could have various negative impacts on socioeconomic development.

"If you increase the interest rate, borrowing will skyrocket. In the third quarter GDP data, the agriculture sector was one of the major drivers of growth, accounting for 29.3 per cent of the GDP and growing by 1.3 per cent; manufacturing increased by 3.4 per cent; mining by - 1.9 per cent, trade rose by 1.2 per cent. Only the ICT sector grew significantly by 6.6 per cent. The sectors we are lending to are already declining," he said.

President and Chairman of Council, CIBN, Ken Opara, urged the government to adopt economic diversification to break the crisis of over- depending on oil. He said interventions such as increased lending to SMES as envisioned in the President's ‘ Renewed Hope Agenda’ would unlock the full potential of the economy.

In his contribution, Chief Consultant, B. Adedipe and Associates, Dr Biodun Adedipe, said inflation is expected to remain above 20 per cent with likely average tilting at 23.47 per cent in the year.

He pointed out that the naira is expected to stabilise in the first quarter ( Q1) of 2024 with average official rate at N900/$ and a parallel market of N1,235/$.

Adedipe projected an upward adjustment of the monetary policy rate ( MPR) in the same period with a likely downward adjustment in the second quarter of the year.

Commercial lending, he said, would remain high in line with MPR adjustment, while non- performing loans of banks are expected to rise in Q1, 2024 as in the case of last quarter.

Adedipe noted that Nigeria has applied the typical IMF recipe of eliminating premiums on the black market segment of the FX market by devaluing the domestic currency which is mere financial ( borrowings and non- FDI capital flows), saying the approach would not solve Nigeria’s underlying structural problems.

In his keynote address, the Deputy Governor in charge of Economic Policy of the CBN, Muhammad Abdullahi, assured that the major policy thrust of the CBN remained pursuance of a flexible exchange rate regime that has resulted in the unification of the foreign exchange market into a single window.

He said the apex bank has also reverted to the conventional monetary policy approach with a focus on attaining price stability, which fosters sustainable economic growth.