The Centre for the Promotion of Public Enterprise (CPPE) has called on the Central Bank of Nigeria (CBN) to expedite the window of development finance for businesses to mitigate the effect of the high monetary policy rate in the country.
He noted that businesses need the single-digit interest rate to drive the Nigerian economy.
Dr Muda Yusuf, Director-General of the CPPE, shared this insight in an interview with CNBC Africa on Wednesday.
According to Yusuf, the aggressive interest rate by the CBN is stifling investment and affecting the capacity of the economy to grow.
Recently on Tuesday, the CBN raised the MPR rate by 150 basis points to 26.25% from 24.75%.
This is the third time in 2024 the apex bank is raising its rate, as it continues its hawkish policy to rein in inflation.
Meanwhile, the CPPE boss believes these measures need to be mitigated with an opening of a development finance window to allow businesses to access single-digit loans from the bank.
Yusuf explained that this measure will allow businesses to access both cheaper and long-term loans and enable them to invest more in the economy.
“First of all, both the fiscal and monetary authorities need to quickly expand the development finance window. I am not advocating that we go back to the era of massive, unregulated intervention funding by the CBN.
“However, we have to move very quickly and very deliberately to opening up the development finance window so that the real sector of the economy can have access to cheaper funds and funds that are of longer tenure. How on earth can anyone do business with an interest rate that is now around 30%? What is the return of the investment, especially at a time like this?
“This is suffocating investment, production. And we don’t want to chase inflation to the complete detriment of those who are trying to produce or invest in the economy.
“Investing in the economy is not just about investing in financial instruments. We need to worry about those who are producing on the ground, those who are creating the job.
“That’s why I think as we go with the monetary tightening, we need to create the development finance window so that businesses can have single-digit interest rate and longer tenure of funds,” Yusuf said.
Limitations of monetary policy instruments on inflation
Speaking further, Yusuf said the aggressive increase in interest rate in reality has little effect on inflation.
According to him, the rise in inflation and the depreciation of the naira all point to the limitations of the monetary policy instruments the CBN is implementing.
Meanwhile, he added that these instruments are affecting the capacity of businesses to grow, making it harder for the economy to develop.
“Yes, we appreciate what the CBN is trying to do but to the extent that we’re still seeing an uptick in inflation rate and challenges around exchange rate depreciation. All of these indicate the limitations of monetary policy instruments.
“Yes, some progress has been made, but when you compare the progress that has been made with the aggressiveness of monetary policy, then you can see that it is not quite proportionate.
“These things are affecting the capacity of the economy to grow. It is affecting entrepreneurs. It’s affecting their capacity to take risk,” he said.
Backstory
Earlier On Tuesday, Nairametrics had reported that the CBN raised the benchmark interest rate by 150 basis points to 26.25% from 24.75%.
The Governor of the CBN, Yemi Cardoso, stated this at the press briefing following the 295th MPC meeting of the bank.
Furthermore, the bank retained the Cash Reserve Ratio (CRR) of Deposit Money Banks (DMBs) at 45% and put the Asymmetric corridor around the MPR at +100 and –300 basis points. The bank further set the liquidity ratio of banks at 30%.
The Governor of the apex bank attributed the third consecutive hike in bank interest rates in 2024 to continued efforts towards moderating inflation which reached 33.69% in April 2024 according to the National Bureau of Statistics (NBS).