The increase in benchmark interest rate by 200 basis points by the Central Bank of Nigeria (CBN) on Tuesday would further burden the real sector and could worsen the volatility at the equities market.
But the increase appeared targeted as support for the tottering foreign exchange management to woo foreign investors.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) on Tuesday increased the Monetary Policy Rate (MPR) by 200 basis points from 12 per cent to 14 per cent. The apex bank however retained the Cash Reserve Requirement (CRR) at 22.50 per cent, the Liquidity Ratio (LR) at 30 per cent and the asymmetric window at +2 per cent and -5 per cent.
According to analysts, while the increase was expected given the jump in inflation rate to 16.5 per cent, the decision would have far-reaching effects on the economy and the financial markets.
Analysts at Capital Bancorp said the increase could lead to more activities in the fixed income segment of the financial market and banks would rather choose to place their funds in government securities than lending to the real sector of the economy as the rate of non-performing loans continue to rise.