High Interest Rates Deepen Pressure on Businesses as CBN Holds MPR at 26.5%

The Central Bank of Nigeria’s (CBN) decision to retain the Monetary Policy Rate (MPR) at 26.5 per cent has reinforced a policy dilemma confronting Africa’s largest economy: how to contain inflation without further weakening business activity and consumer spending.
While the apex bank insists that prevailing monetary conditions remain necessary to safeguard price stability and preserve recent gains in exchange rate management, businesses, economists and investors are increasingly questioning the cost of maintaining one of the highest interest rate environments in Nigeria’s recent history.
The Monetary Policy Committee (MPC), at its 305th meeting held on May 19 and 20, voted to retain the benchmark rate at 26.5 per cent. It also left other monetary parameters unchanged, including the Cash Reserve Ratio (CRR) for Deposit Money Banks at 45 per cent and the asymmetric corridor around the MPR at +500/-100 basis points.
CBN Governor, Mr. Olayemi Cardoso, said the committee’s decision was based on a careful assessment of inflationary risks and emerging global economic developments.
According to him, although inflation has recorded marginal increases in recent months, the MPC considers the trend largely temporary and believes current policy settings remain adequate to guide inflation back towards a downward path.
The apex bank also cited external shocks, particularly geopolitical tensions in the Middle East, which have exerted pressure on global energy prices and logistics costs. However, Cardoso maintained that earlier reforms, including exchange rate adjustments, stronger external reserves and banking sector resilience, have helped cushion the Nigerian economy from more severe consequences.
For businesses, however, the concern extends beyond inflation.
Manufacturers, small business owners and operators in key productive sectors argue that the prolonged high-interest-rate environment has significantly raised the cost of borrowing, making expansion plans difficult and limiting access to working capital.
Many firms now face lending rates that have climbed well above the benchmark rate, a development that has increased financing costs at a time when businesses are already contending with elevated energy expenses, foreign exchange challenges and weak consumer demand.
Economist Dr. Peju Beckley said although the fight against inflation remains important, the real sector has borne a substantial portion of the adjustment burden.
She warned that prolonged monetary tightening could weaken industrial output, slow private sector growth and increase unemployment if businesses continue to struggle with expensive credit.
Her concerns reflect a broader debate among economic stakeholders over whether inflation in Nigeria is being driven primarily by monetary factors or by structural challenges such as insecurity, infrastructure deficits, energy costs and supply chain disruptions.
The Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, described the MPC’s decision as pragmatic under prevailing conditions but cautioned against further tightening.
According to him, much of Nigeria’s inflationary pressure originates from structural and external factors, suggesting that interest rate increases alone may have limited effectiveness in addressing the root causes of rising prices.
He argued that excessive tightening could suppress productivity, discourage investment and slow the pace of industrial recovery.
Financial analyst Mukhtar Muhammed echoed similar concerns, noting that monetary policy cannot single-handedly resolve inflationary pressures.
He called for stronger fiscal interventions aimed at reducing production costs, improving infrastructure and supporting economic activity.
Development economist Dr. Justin Amase also warned that high borrowing costs are eroding purchasing power and constraining business growth. He said companies are finding it increasingly difficult to expand production because of rising financing costs, with implications for employment, output and aggregate demand.
Not all analysts disagree with the CBN’s position.
Professor Uche Uwaleke, Nigeria’s first Professor of Capital Markets, said the balance of risks favoured retaining the policy rate. He pointed to renewed inflationary pressures, exchange rate concerns, declining external reserves and increased election-related spending risks as factors that could have justified even tighter monetary conditions.
According to him, the decision to hold rates reflects an attempt by policymakers to strike a delicate balance between inflation control and economic growth.
That balancing act is likely to define monetary policy discussions in the months ahead. While the CBN remains focused on sustaining macroeconomic stability, pressure is mounting from businesses and households seeking relief from borrowing costs that many believe are becoming a major obstacle to investment, job creation and economic recovery.