Lagos: The Centre for the Promotion of Private Enterprise (CPPE) says the decision of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to hold the interest rates was anticipated. Dr Muda Yusuf, Chief Executive Officer of CPPE, said this in an interview with the News Agency of Nigeria on Wednesday in Lagos.
According to News Agency of Nigeria, Yusuf noted that while the decisions of the MPC were expected, the apex bank and managers of the nation’s economy must develop additional strategies, including trade policy shifts, to combat inflation effectively. This response came after the conclusion of the 301st MPC meeting. The MPC decided to retain the rates for the third consecutive time, keeping the Monetary Policy Rate (MPR) at 27.5 percent. The Cash Reserve Ratio (CRR) remains at 50 percent for deposit money banks and 16 percent for merchant banks, while the Liquidity Ratio is maintained at 30 percent and the Asymmetric Corridor at +500/-100 basis points around the MPR.
Yusuf elaborated that the outcome was foreseeable given current economic conditions, adding that the decision carried both positive and negative implications for the nation’s economy. He acknowledged the expectation that current rates would be sustained due to CBN’s consistent stance of not reducing rates until inflation significantly subsides. Despite a slight decrease in annual inflation to 22.22 percent, month-on-month headline, food, and core inflation all rose in June. The CBN cited inflationary pressures, including high energy costs, insecurity, exchange rate volatility, and logistics expenses, as factors influencing their decision.
Yusuf emphasized the necessity for more affordable funding to stimulate economic growth and investment, pointing out that interest rates surpassing 30 percent are considerably prohibitive. However, he recognized that economic management entails trade-offs. CBN’s firm monetary stance, characterized by high interest rates, has successfully attracted foreign exchange inflows through portfolio investments. This influx of forex is a key positive outcome that justifies CBN’s decision to maintain monetary tightness, even if it seems to impede direct investment and growth.
Yusuf further explained that CBN’s decision had multiple implications, noting that financial instruments would continue to offer attractive returns, benefiting investors in those areas. ‘High interest rates are also favorable for attracting portfolio inflows,’ he said. However, the downsides include sustained pressure on the real sector and borrowers, as the cost of servicing debts will remain high, potentially for at least the next two months until a policy review.
He stressed that the CBN and economic managers should consider factors beyond monetary policy instruments, as these alone cannot address inflation comprehensively. The country needs measures to reduce the cost of production, distribution, and importation of essential inputs for production. ‘There are already some actions, but we need more effective and impactful measures on insecurity so that food production can be scaled up,’ Yusuf stated. These are among the additional policy actions needed to complement the efforts of monetary authorities.
