NECA Says Tight Monetary Conditions Persist Despite MPR Cut

By Adedapo Adesanya

Despite the Central Bank of Nigeria’s (CBN) decision to cut its benchmark interest rate, monetary conditions remain relatively tight, the Nigeria Employers’ Consultative Association (NECA) has insisted.

The Monetary Policy Committee (MPC) of the apex bank earlier this week cut interest rates by 350 basis points but retained all other parameters.

NECA’s Director-General, Mr Adewale-Smatt Oyerinde, said the retention of the Cash Reserve Ratio (CRR) for Deposit Money Banks at 45 per cent showed the rate cut had not translated into a broad easing of monetary conditions, stressing that the reduction in the Monetary Policy Rate (MPR) to 23 per cent would have limited impact on businesses unless it resulted in cheaper loans.

With inflation at 15.39 per cent in August, Mr Oyerinde noted that the new MPR remained above the inflation rate, describing the decision as a measured easing rather than a broad shift towards accommodative monetary policy.

He said the revised corridor, comprising a 23.5 per cent Standing Lending Facility and a 20 per cent Standing Deposit Facility, could support liquidity management but urged the authorities to complement the rate cut with more pragmatic measures to support manufacturers.

Mr Oyerinde stressed that the effectiveness of the policy would depend largely on the transmission of the lower benchmark rate to lending rates, particularly for businesses facing high financing costs.

According to Mr Yemi Cardoso, the Governor of the central bank and chair of the MPC, on Tuesday, the decision should not be interpreted as a shift to monetary easing, describing it instead as an operational adjustment intended to improve monetary policy transmission.

“We will stay on the course, which has been a restrictive one, for as long as we have to,” he said.

“And that’s why I re-emphasise that you should not see this as an easing. This is a reset and a recalibration. That is all it is,” he added.

The governor explained that a widening gap between the MPR and prevailing interbank rates had weakened the effectiveness of monetary policy, requiring the central bank to realign its benchmark rate with market conditions.