The Centre for the Promotion of Private Enterprise, CPPE said the recent interest rate hike to 26.25 % by the Central Bank of Nigeria would worsen the burden on investors amid rising economic hardship.
The Director of CPPE, Muda Yusuf, disclosed this in his reaction to CBN’s interest rate hike.
News Central TV reports that the CBN raised the interest rate to 26.25 percent at Tuesday’s 295th Monetary Policy Committee meeting.
The apex bank retained the Cash Reserve Ratio at 45 per cent, the Liquidity Ratio at 30 per cent, and the Asymmetric Corridor at +100/-300.
However, CPPE said a pause in tightening monetary conditions would be better for the Country’s economy.
“We have seen yet a further tightening of monetary conditions in the economy.
My prayer was for the MPC to pause the rate hikes for several reasons. First, previous rate hikes have been quite aggressive, hurting output and real sector investments. Most economic operators with credit exposures to the banks have not recovered from previous hikes. Interest rates were already around the 30 per cent threshold.
“Secondly, the extant CRR of 45 percent has profound liquidity effects on the financial system.
Both measures dampen financial intermediation, which is the banks’ primary role in an economy.
“Thirdly, the monetary policy transmission channels are still very weak, given the level of financial inclusion in the economy. This limits the prospects of monetary policy effectiveness.
“Meanwhile, the new rate hike is an additional burden on investors who have exposures to bank credit facilities.
Naturally, the central bank is expected to adopt a rigid monetarist disposition. But we need to consider the economic costs.
“Hopefully, with the positive outlook for domestic refining of petroleum products, we may begin to see a moderation in energy costs and a pass-through effect on the general price level.
This is one silver lining that is on the horizon at the moment. Necessary fiscal policy support is urgently needed to compensate for the adverse impact of extreme monetarism on the economy,” CPPE stated.’
