The Centre for the Promotion of Private Enterprise (CPPE) has said the recent increase of the Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN) to 22.75 per cent from the previous 18.75 per cent is not in tandem with Nigeria’s domestic peculiarities.
The centre, in a statement by the chief executive officer, Muda Yusuf, however admitted that the decision was consistent with the typical policy response of Central Banks globally.
He said the CBN’s decision will not only hurt the real sector of the economy which is already contending with numerous macroeconomic challenges, but also pose a major risk to the financial intermediation role of banks in the Nigerian economy.
According to Yusuf, the increase would constrain the capacity of banks to support economic growth and investment, especially in the real sector of the economy because the increases are quite significant.
While noting that the key drivers of Nigeria inflation are largely supply-side variables, and the CBN ways and means financing, he observed that over the last two years, there has been persistent monetary policy tightening, with no significant impact on the inflationary pressures, with the general price level being continuously on the increase.
“We recognize that the primary mandate of the CBN is price stability, but numerous headwinds have posed significant risks to this critical objective.
“Some of these include the surge in commodity prices and impact on energy cost, disruptive effects of insecurity on agricultural output, and global supply chain disruptions,” the statement read
The CPPE also accused the CBN of being complicit in the inflation predicament over the years, by its handing of the ways and means financing, which has been on the increase.
Yusuf noted that the hike in MPR or CRR would not change these variables.
He said that already, bank lending has been constrained by the high CRR which was until the latest review, 32.5%, the discretionary debts by the apex bank.
He added that the credit situation in the economy is already very tight, with lending rates ranging between 25 -30%, adding that Nigerian banks are yet to live up to their financial intermediation role because of these constraining factors.
He further said that the transmission effects of monetary policy on the Nigerian economy are still very weak adding that in the Nigerian context, price levels are not interest sensitive while supply-side issues are much more profound drivers of inflation.
Yusuf stated that the new dramatic increase in MPR to 22.75% hike means that the cost of credit to the few private sector that have exposure to bank credits will increase which will impact their operating costs, prices of their products, and profit margins, amidst very challenging operating conditions.
He added that the equities market may also be adversely impacted by the hike, and called on the CBN accelerate the process of increased capitalisation of the development finance institutions to create a concessionary financing window for the real sector and small businesses.
To reverse the spiralling inflation, he noted that the government needs to address the security concerns disrupting agricultural activities, sustaining reforms in the foreign exchange market to stabilise the exchange rate, reduce volatility, and stimulate forex inflows, address forex liquidity issues through appropriate policy measures incentives forex inflows into the economy and fixing the structural problems to boost productivity and competitiveness of domestic firms.
