You started your business in Nigeria and you had projected that you will be home and dry as regards profit at a certain time. That time had come and gone, yet your business is still barely surviving.

You are not alone. There is rising inflation in the oil-rich nation and the Central Bank of Nigeria (CBN) is getting the knock for this.

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Recently, the CBN raised Monetary Policy Rate (MPR) by 50 basis point.

This raise has drawn the interest of economists and experts. Some say it will lead to profit squeeze that is how if affects you.

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Profit squeeze is a situation where the profit margins of a business have decreased or are decreasing.

This type of squeeze happens when a company’s revenue declines or its costs rises and it is unable to raise prices accordingly.

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Nigeria is a country with largely people of low income and that means the buying power of the people is relatively low.

Amidst this situation, the apex bank had last week Tuesday announced increase in MPR by 50 basis points to 18%.

Expect Bearish Trading 

One person that is not comfortable with this increase is the Managing Director, Arthur Steven Asset Management, Olatunde Amolegbe.

He says the 50 basis point increase in MPR would lead to higher finance costs for firms, which might cause profit squeeze.

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Also, Amolegbe, who is a chartered stock broker, expressed fears that the capital market will get a share of this issue.

According to him, with an expectation of a drop in the profit, investors are most likely going to ease up on the equities market with the expectation that yields will adjust upwards.

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“However, if inflation is still not arrested, investors would most likely come back to the equities market as the only known hedge against inflation.

“In the fixed income market, we expect bearish trading to continue in the short term, since the effective inflation adjusted return is still negative despite this increase in MPR,” Amolegbe said.

Though the CBN is projecting that the MPR increment to 18% will help reduce the rising inflation in Nigeria, yet investors and business owners who are on the receiving end may not share the same sentiments.

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