The Centre for the Promotion of Private Enterprise (CPPE) says the latest hike in interest rate by the Central Bank of Nigeria (CBN) is detrimental to investment and economic growth.
In a statement on Tuesday, Muda Yusuf, chief executive officer of CPPE, said the economy needs oxygen and stimulus, not policy measures that would worsen an already suffocating situation.
The monetary policy committee (MPC) of the CBN raised the monetary policy rate (MPR), which benchmarks interest rates, from 26.75 percent to 27.25 percent earlier today.
Olayemi Cardoso, CBN’s governor, announced the 50 basis points increase at a press conference on Tuesday after the committee’s 297th meeting in Abuja.
CBN retained the asymmetric corridor at +500 and -100 basis points around the MPR, but increased the cash reserve ratio (CRR) from 45 percent to 50 percent, while retaining the liquidity rate at 30 percent.
Addressing the MPC decisions, Yusuf said these monetary conditions are very difficult to bear for most businesses, given the prevailing macroeconomic and structural conditions.
“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,” he said.
“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.”
The director said, most of the extra money in the system comes from the public sector, so the solution should focus on that.
“The private sector should not be made to pay the price of liquidity growth which they were not responsible for,” he said.
“Issues of excess liquidity should be addressed within a causative context. The injection of liquidity into the system is 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. The implication of the latest MPC decision for investors is quite concerning as cost of funds would be further exacerbated, possibly well above 35% or more. It is made worse by the increase in CRR to 50% and retention of an asymmetric corridor of +500 and -100.”
He warned that the increase in CRR to 50 percent would have negative consequences for the banking system and the economy.
“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,” Yusuf said.
“The operating and production costs of businesses would be further exacerbated by the latest monetary policy tightening.”
Yusuf said the increase in CRR to 50 percent would constrain financial intermediation with negative consequences for the banking system and the economy.
