Centre for the Promotion of Private Enterprise has said that it is quite troubling that at a time when manufacturers, entrepreneurs and other investors in the economy are craving for a breath of fresh air, the CBN chose to tighten the noose on them by resorting to a further tightening of monetary policy. CBN MPC had said “the Committee was unanimous in its decision to further tighten policy and thus: raise the MPR by 50 basis points to 27.25 per cent from 26.75 per cent; retain the asymmetric corridor around the MPR at +500/-100 basis points; raise the Cash Reserve Ratio of Deposit Money Banks by 500 basis points to 50.00 per cent from 45.00 per cent and Merchant Banks by 200 basis points to 16 per cent from 14 per cent: retain the Liquidity Ratio at 30.00 per cent. The Committee noted the moderation in headline inflation year-on-year in July and August 2024. In addition, the MPC noted the relative stability and convergence in the exchange rate across the various market segments, resulting from the Bank’s tight monetary policy stance”.
Reacting to the MPC decision to further raise interest rates CEO of CPPE said “the latest policy choice of the apex bank is at variance with the mood of most economic players and the desire to promote economic recovery and growth. What manufacturers and other investors need at this time is some oxygen and stimulus, not policy measures that would worsen an already suffocating situation. MPR at 27.25%; CRR at 50% and asymmetric corridor at +500 and -100 are very difficult monetary condition to bear for most businesses, given the prevailing macroeconomic and structural conditions. The second quarter GDP numbers showed clearly that the economy was still in a floundering mode as many critical sectors of the economy slowed. These include manufacturing and other subsectors of the industrial sector such as cement, food and beverage, chemicals and pharmaceuticals, trade, ICT and real estate. “The road transport, motor assembly, publishing and motion pictures sectors contracted during the quarter. The Aviation, Oil Refining, textile , livestock and quarry and minerals sector were still in recession. Tightening financial conditions in the circumstances does not seem appropriate. The private sector should not be made to pay the price of liquidity growth which they were not responsible for. Issues of excess liquidity should be addressed within a causative context. The injection of liquidity into the system are 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 investment and growth of the economy.
“The implication of the latest MPC decision for investors are quite concerning as cost funds would be further exacerbated, possibly well above 35% or more. It is made worse by the increase in CRR to 50% and retention of asymmetric corridor of +500 and -100. We believe that the policy decisions of the CBN are most inappropriate for the prevailing economic conditions and the challenges faced by entrepreneurs in the country. The operating and production costs of businesses would be further exacerbated by the latest monetary policy tightening. The increase in CRR to 50% would constrain financial intermediation with negative consequences for the banking system and the economy”.
