CPPE faults CBN’s 27.25% MPR rate hike

…Says it threatens businesses, economic recovery

The Centre for the Promotion of Private Enterprise (CPPE) has raised concerns over the Central Bank of Nigeria’s (CBN) latest Monetary Policy Rate (MPR) hike and other key financial indicators.

The Monetary Policy Committee (MPC) of the CBN, on Tuesday, again raised the benchmark interest rate by 50 basis points, bringing the MPR to 27.25 percent.

Additionally, the Cash Reserve Ratio (CRR) for commercial banks was raised by 500 basis points to 50 percent, while merchant banks saw a smaller CRR increase of 200 basis points to 16 percent. The CBN also retained the asymmetric corridor around the MPR at +500/-100 basis points.

Reacting to this, Muda Yusuf, the director/CEO of the CPPE, said the latest monetary policy tightening was ill-timed and counter-productive, given the current state of the Nigerian economy.

Yusuf said that the apex bank’s move, aimed at curbing inflationary pressures, has not gone down well with several economic stakeholders, including manufacturers and investors. He expressed concern that these policy measures could further stifle economic growth, particularly in sectors already struggling with high operating costs.

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“The manufacturing sector, alongside others such as cement, food and beverages, chemicals, pharmaceuticals, and real estate, is still grappling with significant challenges. This rate hike will only exacerbate their difficulties,” he stated.

He further pointed out that sectors like aviation, oil refining, textile, and transport have been in recession and would be hit harder by the rising cost of funds.

According to CPPE, the tightening of financial conditions under these prevailing economic and structural difficulties was a misstep. He emphasised that the private sector should not bear the brunt of excess liquidity issues in the system, which are primarily public sector-driven.

He urged the CBN to focus on addressing liquidity concerns within the appropriate context, rather than burdening businesses with policies that would constrain financial intermediation and increase the cost of capital.

Yusuf warned that with the CRR now at 50 percent, businesses could face borrowing rates of 35 percent or higher, making it nearly impossible for many entrepreneurs to sustain operations.

“The decision to retain the asymmetric corridor of +500/-100 basis points, coupled with the CRR increase, will stifle the banking sector’s ability to lend, further choking the economy’s growth potential,” he added.