By Grace Alegba
Thank you for reading this post, don't forget to subscribe!The Centre for the Promotion of Private Enterprise (CPPE) has warned that the Central Bank of Nigeria (CBN)’s recent decision to tighten financial conditions will adversely impact businesses and hinder investment and economic growth.
Dr. Muda Yusuf, Chief Executive Officer of CPPE, expressed his concerns in a statement on Tuesday, following the Monetary Policy Committee (MPC) meeting where the CBN increased the Monetary Policy Rate (MPR) by 50 basis points, raising it from 26.75% to 27.25%.
Yusuf lamented that this decision comes at a time when manufacturers, entrepreneurs, and investors are struggling and in need of support. He noted that the latest measures contradict the prevailing sentiments among economic players.
“What manufacturers and other investors need at this time is some oxygen and stimulus, not policy measures that will worsen an already suffocating situation,” he said.
With the MPR now at 27.25%, the Cash Reserve Ratio (CRR) at 50%, and an asymmetric corridor of +500 and -100, Yusuf indicated that the current monetary conditions are burdensome for most businesses, especially considering the existing macroeconomic challenges.
He highlighted that recent GDP figures for the second quarter reflect a struggling economy, with several key sectors, including manufacturing, cement, food and beverage, chemicals, pharmaceuticals, trade, ICT, and real estate, experiencing slowdowns. Additionally, sectors such as road transport, motor assembly, publishing, and motion pictures contracted, while aviation, oil refining, textiles, livestock, and quarry and minerals are still in recession.
“Tightening financial conditions in these circumstances does not seem appropriate,” Yusuf stated. He argued that the private sector should not bear the brunt of excess liquidity, which it did not cause. “Issues of excess liquidity should be addressed within a causative context,” he added.
He emphasized that the liquidity injections into the system are largely driven by the public sector, as noted by the CBN Governor. Therefore, addressing liquidity issues should not come at the expense of stifling financial conditions, which could harm investment and economic growth.
Yusuf expressed concern that the latest MPC decision would further escalate the cost of funds for investors, exacerbated by the increased CRR and the retention of the asymmetric corridor. “We believe that the CBN’s policy decisions are inappropriate for the prevailing economic conditions and the challenges faced by entrepreneurs in the country,” he concluded.
Conversely, Prof. Uche Uwaleke, Financial Economist and Director of the Institute of Capital Market Studies at Nasarawa State University, suggested that the CBN’s decisions were made in the public’s interest. He noted, “In matters like this, the CBN usually has information that may not be at the disposal of the public. I want to believe that the members of the MPC mean well for the economy and have made their decision based on strong evidence of significant threats to exchange rates and inflation.”
Uwaleke stressed that addressing inflation requires a collaborative effort from both monetary and fiscal authorities, with the government needing to manage recurrent spending while focusing on productivity.
