CBN Rate Hike Will Disrupt Economic Growth, Investment—CPPE

By Aduragbemi Omiyale

The hike in the Monetary Policy Rate (MPR) by 4.00 per cent by the Central Bank of Nigeria (CBN) on Tuesday will not bring down inflation as believed, the Centre for the Promotion of Private Enterprise (CPPE) has declared.

The chief executive of the organisation, Mr Muda Yusuf, said this is so because the Monetary Policy Committee (MPC) of the apex bank failed to take into consideration the country’s peculiarities before deciding to jerk the benchmark interest rate to 22.75 per cent from 18.75 per cent.

The CBN, through its governor, Mr Yemi Cardoso, while briefing journalists yesterday in Abuja, explained that it decided to further tighten its monetary policy to rein in inflation, which rose by 29.90 per cent last month, according to the National Bureau of Statistics (NBS).

The central bank, at the end of its two-day MPC meeting on Tuesday, also pushed the Cash Reserve Ratio (CRR) higher to 45.0 per cent from 32.5 per cent to soak excess liquidity from its intervention funds, loans to the federal government through ways and means, and others.

Reacting to this, Mr Yusuf said while it is true that central banks globally always tighten monetary policies to tame inflation, the situation in Nigeria was purely caused by a shortfall in the supply of food to the market due to insecurity in the northern part of the country, where most of the items come from.

He submitted that drying up funds would hurt the economy as banks would not be able to perform their statutory function of lending to the real sector of the economy.

“The increase of Monetary Policy Rate(MPR) from 18.75 per cent to 22.5 per cent; and Cash Reserve Ratio (CRR) from 32.5 per cent to 45 per cent pose a major risk to the financial intermediation role of banks in the Nigerian economy.

“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.

“Although the decision was consistent with the typical policy response of the Central Banks globally, it failed to reckon with domestic peculiarities.

“The key drivers of Nigeria inflation are largely supply-side variables, and the CBN ways and means financing.

“Over the last two years, there had been persistent monetary policy tightening, yet there has not been any significant impact on the inflationary pressures. If anything, the general price level had been continuously on the increase,” he stated.

The economic analyst noted “the credit situation in the economy is already very tight, with lending rates ranging between 25 per cent and 30 per cent. The Nigerian banks are yet to live up to their financial intermediation role because of these constraining factors.”