The Centre for the Promotion of Private Enterprise (CPPE) has commended the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) for its decision to pause rate hikes.
Dr. Muda Yusuf, Chief Executive Officer of CPPE, stated that the CBN’s decision aligns with the centre’s expectations.
However, he called for future reductions in rates and expressed reservations regarding the Cash Reserve Ratio (CRR).
“Given the recently rebased inflation rate computation, we have seen a decline in inflation to 24.48 percent, which is currently lower than the monetary policy rate. It makes sense to retain the rates to avoid further exacerbating interest rate pressures on businesses and citizens with bank exposures. Going forward, we should begin to see a moderation in the rates and a relaxation of these tightening measures,” he said.
Undue pressure
He emphasized that it is not acceptable for the Monetary Policy Rate (MPR) to be higher than the inflation rate, as this places undue pressure on investors in the economy. Yusuf stressed the need for the apex bank to gradually reduce the MPR and relax the CRR during the next MPC meeting in May.
Dr. Yusuf noted that prices of some commodities, including energy, diesel, Petroleum Motor Spirit (PMS), and pharmaceuticals, are beginning to drop. He highlighted that maintaining exchange rate stability could lead to further price reductions in other products.
“The inflation outlook appears better, and we expect the CBN to relax some of these rates by the next MPC meeting,” he added.
However, he expressed concern over the CRR, which stands at 50 percent— the highest globally. “There is no justification for maintaining such an outrageous CRR level. Our economic or macroeconomic situation is not so dire to warrant it. The closest to Nigeria’s CRR of 50 percent is Turkey’s, at just 25 percent. Going forward, the CRR needs to be reduced,” Yusuf noted.
What you should know
He also observed that the asymmetric corridor of +500/-100 basis points is too wide. “If the MPR is already at 27.5 percent, an asymmetric corridor at +500 basis points is not healthy.
Continuing on this trajectory could practically disconnect the financial system from the real economy, which would seriously impact economic growth,” Yusuf explained.
- Dr. Yusuf advised the CBN committee to re-evaluate its decisions on tightening measures.
- During its 299th meeting on Wednesday and Thursday, the MPC retained the MPR at 27.50 percent and the asymmetric corridor around the MPR at +500/-100 basis points.
The apex bank also retained the CRR of Deposit Money Banks (DMBs) at 50 percent, Merchant Banks at 16 percent, and the Liquidity Ratio at 30 percent.
