The Centre for the Promotion of Private Enterprise (CPPE) has said the decision of the Monetary Policy Committee of the CBN to raise the Monetary Policy Rate to 13 per cent will further tighten the lending situation in the country.
The MPC on Tuesday voted to increase the MPR which for many years was held at 11.5 per cent to 13 per cent.
The centre also said the federal government has to address the security concerns disrupting agricultural activities, reform the foreign exchange market, reduce volatility and stimulate forex inflows.
In a statement, Founder/CEO, CPPE, Dr Muda Yusuf, said the new interest rate is expected to further reduce the access to credits by business owners from Nigerian banks.
He said the outcome of the MPC meeting was not unexpected, having regard to the intense inflationary pressures, the increasing risks to price stability and the policy tightening trend by Central Banks globally.
“The primary mandate of the CBN is price stability.”
“Numerous headwinds had posed significant risks to this critical CBN objective. Some of these include the surge in commodity prices and impact on energy costs, the spike in domestic liquidity from electioneering related spending and global supply chain disruptions.
“The hike in MPR by 150 basis points to 13% by the MPC is therefore understandable. But whether this would significantly impact inflation is a different matter. Already, bank lending has been constrained by the high CRR [many operators in the sector claim that effective CRR is as high as 50% or more for many banks], the discretionary debts by the apex bank, the 65% Loan to Deposit Ratio [LDR] and liquidity ratio of 30%. The lending situation in the economy is already very tight.
“The Nigerian economy is not a credit-driven economy, unlike what obtains in many advanced economies which have much higher levels of financial inclusion, robust consumer credit framework and strong correlation between interest rate and aggregate demand, ”the statement read.
It further pointed out that the level of financial inclusion in the Nigerian economy is still quite low, access to credit by households and MSMEs is still very challenging, and the informal sector accounts for close to 50% of the economy.
“The transmission effect of monetary policy on the economy is therefore still very weak. In the Nigerian context, price levels are not interest sensitive. Supply-side issues are much more profound drivers of inflation,” it added.
