The Center for Promoting Private Enterprise (CPPE) said the CBN’s Monetary Policy Committee’s decision to raise the policy rate to 13 percent will further tighten the lending situation in the country.
The MPC voted on Tuesday to increase the MPR which for many years has been kept between 11.5% and 13%.
The center also said the federal government must address security issues that disrupt agricultural activities, reform the foreign exchange market, reduce volatility and boost foreign exchange inflows.
In a statement, CPPE Founder/CEO Dr Muda Yusuf said the new interest rate is expected to further reduce business owners’ access to credit from Nigerian banks.
He said the outcome of the MPC meeting was not unexpected, given the intense inflationary pressures, growing risks to price stability and the trend towards tighter central bank policies globally.
“The CBN’s primary mandate is price stability.”
“Many headwinds had posed significant risks to this critical CBN objective. Some of them include soaring commodity prices and the impact on energy costs, surging domestic liquidity due to campaign-related expenses, and global supply chain disruptions.
“The MPR hike of 150 basis points to 13% by the MPC is therefore understandable. But whether that has a significant impact on inflation is another matter. Already, bank lending has been constrained by high CRR [many operators in the sector claim that effective CRR is as high as 50% or more for many banks]the discretionary debts of the apex bank, the loan-to-deposit ratio of 65% [LDR] and a liquidity ratio of 30%. The lending situation in the economy is already very tight.
“The Nigerian economy is not a credit driven economy unlike many advanced economies which have much higher levels of financial inclusion, a robust consumer credit framework and a strong correlation between interest rates and aggregate demand,” the statement said.
He further pointed out that the level of financial inclusion in the Nigerian economy is still quite low, that access to credit for households and MSMEs is still very difficult and that the informal sector accounts for nearly 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 sensitive to interest rates. Supply issues are much deeper drivers of inflation,” he added.
