The Centre for the Promotion of Private Enterprise (CPPE) has raised concerns about the Central Bank of Nigeria's (CBN) latest interest rate hike, warning that it will stifle investment and business growth in an already struggling economy.
Dr.
Muda Yusuf, the Executive Director of CPPE, expressed these concerns in
response to the CBN Monetary Policy Committee’s (MPC) recent decision to raise
the Monetary Policy Rate (MPR) by 50 basis points to 27.25% during its 297th
meeting in September 2024. Yusuf criticized the CBN’s continuous monetary
tightening policies, stating that they are ill-timed and detrimental to
Nigeria’s fragile economic recovery.
Impact on
Economic Recovery and Businesses
The
CPPE emphasized that the decision to hike interest rates is out of touch with
the realities faced by Nigeria's economic players. The rate increase comes at a
time when businesses, particularly in manufacturing and other key sectors, are
already grappling with high operating costs and challenging economic
conditions.
Yusuf
highlighted that many critical sectors of the economy, including manufacturing,
ICT, trade, real estate, and industrial sub-sectors such as cement, food and
beverages, chemicals, and pharmaceuticals, have slowed down significantly, as
seen in Nigeria’s second-quarter GDP report. He also pointed out that sectors
like aviation, textiles, livestock, and mineral extraction are still in
recession, making the decision to tighten financial conditions even more
concerning.
He
noted that what Nigerian businesses and investors need right now is economic
stimulus and support, not further restrictions that will worsen the already
suffocating environment.
“What
investors and manufacturers need is some oxygen and stimulus, not policy
measures that would worsen an already suffocating situation,” Yusuf remarked.
Monetary
Policy Too Harsh for Current Conditions
The
CPPE further explained that the combination of the MPR set at 27.25%, a Cash
Reserve Ratio (CRR) of 50%, and an asymmetric corridor of +500/-100 basis
points creates highly restrictive monetary conditions. Yusuf argued that this
policy stance does not align with the current macroeconomic landscape and
structural challenges, making it difficult for businesses to thrive.
He
also warned that the latest rate hike would have severe implications for
investors, as the cost of borrowing could escalate to over 35%. This would
further burden businesses that are already contending with high production and
operating costs.
According
to Yusuf, the CRR increase to 50% would also constrain financial
intermediation, limiting banks’ ability to lend, which in turn would have a
negative ripple effect on the wider economy.
Public
Sector-Led Liquidity Issues
Yusuf
pointed out that liquidity challenges in Nigeria's economy are largely driven
by public sector activities, as acknowledged by the CBN Governor. He argued
that businesses in the private sector should not bear the brunt of liquidity
management policies for issues they did not cause. The economist called for a
more targeted approach to addressing excess liquidity, one that focuses on its
root causes rather than resorting to broad monetary tightening measures that
stifle private sector growth.
“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 the investment and growth of the economy,” Yusuf
stated.
Negative
Consequences for Investors and Entrepreneurs
The
CPPE warned that the CBN’s continued reliance on interest rate hikes as a means
of controlling liquidity is inappropriate for the current economic climate.
Yusuf stressed that the latest policy decisions will only serve to exacerbate
the challenges faced by entrepreneurs, driving up the cost of funds and
crippling business operations.
“The
policy decisions of the CBN are most inappropriate for the prevailing economic
conditions and the challenges faced by entrepreneurs in the country,” he said.
“The operating and production costs of businesses would be further exacerbated
by the latest monetary policy tightening.”
Conclusion
Dr. Muda Yusuf and the CPPE are calling on the Central Bank of Nigeria to reconsider its approach to managing the economy. Instead of further tightening monetary policies, Yusuf advocates for strategies that encourage investment and stimulate growth, particularly in key sectors of the economy. Without such adjustments, Nigeria's businesses may continue to struggle under the weight of high borrowing costs and restrictive financial conditions, hindering the nation’s overall economic recovery.
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