The Association of Small Business Owners of Nigeria (ASBON) has welcomed the Central Bank of Nigeria's (CBN) reduction of the Monetary Policy Rate (MPR) by 350 basis points. ASBON National President, Dr. Femi Egbesola, described the development as a long-awaited relief for small and medium-sized enterprises (SMEs). He expressed optimism that the rate cut could ease pressure on SMEs, which have been grappling with high borrowing costs and difficult operating conditions.
According to Egbesola, the rate reduction is particularly significant for the SME community, which has been facing high borrowing costs. He noted that the development could indicate that the government's economic reforms are beginning to produce some macroeconomic gains, particularly as inflationary pressures ease. Egbesola added that the rate cut is a welcome development, but its impact would depend largely on whether commercial banks translate the reduction into lower borrowing costs for businesses.
Egbesola stressed that the reduction in the benchmark rate should not remain merely a policy announcement, insisting that its real test would be its impact on the cost of accessing credit. He noted that commercial banks have historically responded much faster to upward movements in the MPR than to downward adjustments. This, he said, has resulted in SMEs being charged high interest rates, even when the MPR has been reduced.
The ASBON chairman urged banks to respond promptly to the latest reduction by reviewing their lending rates, saying SMEs should be allowed to feel the benefit of the monetary policy adjustment. He argued that whenever there is an increase in MPR, banks quickly jack up their interest rates, but when there is a lowering of interest rates, it is not matched with immediate action. Egbesola expressed hope that banks would this time around respond quickly to the rate cut.
Beyond borrowing costs, Egbesola said the government must address the broader challenges confronting businesses if the MPR reduction is to translate into meaningful economic relief. He noted that cheaper credit alone would not be sufficient if businesses continue to face high energy and electricity costs. According to him, SMEs require a combination of lower financing costs and a more favourable operating environment to thrive.
Egbesola identified high energy and electricity costs as some of the harsh conditions that SMEs face, which, he said, would erode the benefits of the interest rate reduction. He argued that if interest rates go down and conditions of being in business remain harsh, it would rough up the benefit of the interest rates. Therefore, he urged the government to address these challenges to ensure that SMEs can operate efficiently.
The CBN's decision to cut the MPR by 350 basis points is expected to have a positive impact on the economy, particularly on SMEs. However, the success of this policy depends on the banks' willingness to translate the reduction into lower lending rates. ASBON and other stakeholders will be monitoring the situation closely to ensure that the benefits of the rate cut are passed on to SMEs.
Key points
- The Association of Small Business Owners of Nigeria welcomes the CBN's rate cut.
- The impact of the rate cut depends on commercial banks translating the reduction into lower borrowing costs for businesses.
- The government must address broader challenges confronting businesses, including high energy and electricity costs.
