The Centre for the Promotion of Private Enterprise (CPPE) has criticized the Central Bank of Nigeria (CBN) for its decision to implement a fifth consecutive interest rate hike, despite the ongoing economic challenges in the country.
In a statement released on Tuesday, CPPE’s Executive Director, Muda Yusuf, responded to the CBN’s latest move, which saw the Monetary Policy Committee (MPC) increase the interest rate by 50 basis points to 27.25% during its 297th meeting in September 2024.
Yusuf expressed concern that the CBN’s continued tightening of monetary policy is out of step with the needs of the private sector and counterproductive to efforts aimed at economic recovery. He argued that businesses and investors need relief and stimulus, not policies that exacerbate existing hardships.
“MPR at 27.25%, CRR at 50%, and an asymmetric corridor at +500 and -100 are very tough monetary conditions for most businesses, especially in the current macroeconomic and structural climate,” Yusuf stated.
He pointed to the second quarter GDP data, which revealed a sluggish economy with key sectors like manufacturing, cement, food and beverage, chemicals, pharmaceuticals, ICT, and real estate experiencing a slowdown. Other sectors, including aviation, refining, textiles, livestock, and quarrying, remained in recession. Tightening monetary policy under these conditions, Yusuf noted, is ill-timed and harmful.
Yusuf also highlighted that liquidity growth in the economy is primarily driven by public-sector actions, as acknowledged by the CBN Governor. He argued that targeting the private sector to resolve liquidity issues is unjustified and harmful to investments and economic growth.
“The latest MPC decision will significantly increase the cost of funds, potentially raising it above 35%. This, combined with the hike in the Cash Reserve Ratio (CRR) to 50% and the retention of the asymmetric corridors, will further stifle financial intermediation, affecting the banking system and the broader economy,” Yusuf warned.
In conclusion, the CPPE urged the CBN to reconsider its policy approach, emphasizing that the current tightening measures are ill-suited for the prevailing economic conditions and will exacerbate the challenges faced by entrepreneurs and businesses in Nigeria.
