Central Bank of Nigeria faces scrutiny over monetary policy and lending rates

The Central Bank of Nigeria (CBN) is facing scrutiny over its use of the Monetary Policy Rate (MPR) to manage the national economy. While the CBN has utilized MPR hikes to combat inflation—recently reducing the rate to 23 per cent as inflation dropped to 15.4 per cent—critics argue that the benchmark rate remains a primary driver of high lending costs.

Because banks are unable to lend below the MPR, interest rates remain in the high double digits, creating significant challenges for micro, small, and medium enterprises (MSMEs). President Bola Ahmed Tinubu has expressed frustration regarding these high lending rates. Finance Minister Taiwo Oyedele, representing the president at a Chartered Institute of Bankers of Nigeria (CIBN) event, placed the responsibility for these high rates on the banking sector.

Further concerns have been raised regarding the effectiveness of the MPR in signaling economic intentions and its impact on the naira. Additionally, the high cash reserve requirement (CRR) of 45 per cent for deposit money banks means nearly half of qualifying deposits are held by the central bank, limiting the liquidity available for commercial lending.