Victor EzejaThe Centre for the Promotion of Private Enterprise (CPPE) has raised concerns about the impact of the latest decision of the Central Bank of Nigeria (CBN) to raise interest rate on investments and economic growth in the country.
The economic think tank said the decision is at variance with what economic players need and the quest for economic recovery and growth.
Join our WhatsApp ChannelPrime Business Africa had reported that the CBN’s Monetary Policy Committee (MPC) raised the Monetary Policy Rate (MPR) from 26.75 per cent to 27.25 per cent during its 297th meeting in Abuja.
The decision was announced by CBN Governor Dr Olayemi Cardoso on Tuesday, 24 September in Abuja after the MPC meeting.
The apex bank also increased the Cash Reserve Ratio (CRR) from 45 per cent to 50 per cent. It, however, retained the asymmetric corridor around the MPR at +500/-100 basis points and the liquidity ratio (LR) at 30 per cent.
In a statement on Tuesday, CPPE CEO, Dr Muda Yusuf, said it is a very difficult monetary condition to bear by most businesses, given the prevailing macroeconomic and structural conditions in the country.
Dr Yusuf, a former director general of the Lagos Chamber of Commerce and Industry (LCCI), said what businesses need at the moment are relief measures to survive and contribute to economic growth not policies that worsen the situation.
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He said: “It is quite troubling that at a time when manufacturers, entrepreneurs and other investors in the economy are craving for a breath of fresh air, the CBN chose to tighten the noose on them by resorting to a further tightening of monetary policy. “The latest policy choice of the apex bank is at variance with the mood of most economic players and the desire to promote economic recovery and growth.
“What manufacturers and other investors need at this time is some oxygen and stimulus, not policy measures that would worsen an already suffocating situation.”
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The CPPE CEO observed that the second quarter GDP figures showed that the economy is still struggling as many critical sectors of the economy slowed.
He therefore warned that “Tightening financial conditions in the present circumstance does not seem appropriate.”
Addressing Excess Liquidity
Yusuf said the issue of excess liquidity in the financial system should be addressed within the appropriate context and not make private sector players pay for what they did not cause by tightening monetary conditions.
“The injection of liquidity into the system are largely public sector driven, as rightly noted by the CBN Governor. Therefore, the focus of resolving it should be within that context.
“Stifling the financial conditions to address liquidity issues is detrimental to investment and growth of the economy,” he warned.
The economic expert further raised concerns about the impact of the latest baseline interest rate hike on investors as cost of funds could possibly increase above 35 per cent. “It is made worse by the increase in CRR to 50% and retention of asymmetric corridor of +500 and -100.
“We believe that the policy decisions of the CBN are most inappropriate for the prevailing economic conditions and the challenges faced by entrepreneurs in the country,” the CPPE CEO stated.
He observed that the latest monetary policy tightening would further exacerbate costs of businesses.
He further warned that the increase in CRR to 50 per cent would have negative consequences for the banking system and the economy.
Victor Ezeja is a passionate journalist with six years of experience writing on economy, politics and energy. He holds a Masters degree in Mass Communication.
