The Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) has expressed concerns over the recent hike of the country’s Monetary Policy Rate (MPR), also known as the benchmark interest rate, from 22.75 percent to 24.75 percent by the Central Bank of Nigeria (CBN), noting that the change will come with unintended negative consequences including higher inflation among others.
In a statement in response to the MPR and Cash Reserve Ratio (CRR) increases by the CBN, the National President of NACCIMA, Dele Oye Esq., advised that the CBN’s policies should be recalibrated towards addressing the excess liquidity primarily stemming from the public sector’s borrowing habits and expenditure.
It should be noted that the CBN recently hiked the MPR in a bid to curtail rising inflation in Nigeria.
He listed some negative implications of the policies to include an increase in the cost of borrowing, restricted credit availability, pass-through effects on inflation, and stifling economic growth.
“In the wake of the Central Bank of Nigeria’s recent decision to increase the Monetary Policy Rate (MPR) to 24.75% and the Cash Reserve Ratio (CRR) to 45%, the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) wishes to express its perspective on the implications of these changes for the private sector and the broader Nigerian economy, ” Oye said.
He added that NACCIMA, that represents the collective voice of Nigerian businesses across commercial, industrial, and agricultural sectors, is deeply concerned by the Central Bank’s approach to curbing inflation and managing excess liquidity through broad-based policy tools that inadvertently impose constraints on the private sector’s ability to access affordable credit.
Oye added: “Our position, as detailed in our previous communication (Ref: NACC/NP22/23/1249 dated 13th March 2024), remains that the focus of the CBN’s policies should be recalibrated towards addressing the excess liquidity primarily stemming from the public sector’s borrowing habits and Expenditure. The private sector, which has been effectively sidelined in the bank lending market due to the crowding-out effect, now faces even more severe repercussions.”
NACCIMA listed the negative consequences of the rate hike to include an increase in the cost of borrowing, implying that “existing loans will incur higher interest rates, raising the cost of capital for businesses. This scenario discourages entrepreneurial activities and expansion plans, which are vital for economic growth and job creation”.
He noted “Restricted credit availability: With the increase in the CRR, banks’ ability to lend is further curtailed. This exacerbates the challenges faced by the private sector, which is already grappling with limited access to finance.
“Pass-through effects on inflation: As businesses incur higher interest costs, they are left with no option but to pass these costs on to consumers through increased prices for goods and services, which can contribute to inflation rather than curb it.
According to Oye, stifling economic growth by tightening the monetary conditions may lead to a reduction in investment and consumption, which are essential drivers of economic growth. This could potentially stifle the economic recovery and dampen the prospects for prosperity.”
The NACCIMA boss recommended that the CBN should pursue a more nuanced and targeted approach, focusing on mechanisms that specifically address liquidity issues in the public sector without placing undue burden on the private sector.
“Additionally, policy directions should be clear and communicated on a quarterly basis, with a robust stakeholder engagement strategy to ensure that the views and concerns of the private sector are considered in policy formulation,” Oye noted.
He said that while NCCIMA acknowledges the CBN’s mandate to maintain price stability, we urge a re-evaluation of the current policy measures to foster a more conducive environment for private sector-led economic growth. We remain committed to engaging with the CBN and the Ministry of Finance to find sustainable solutions that will ensure the economic well-being and prosperity of all Nigerians.
