The Lagos Chamber of Commerce and Industry has hailed the Central Bank of Nigeria’s reduction of the Monetary Policy Rate from 14 percent to 13.5 percent.
The Director-General of the LCCI, Mr Muda Yusuf, made this commendation in a statement made available to reporters.
He noted that the policy was in consonance with the clamour by the private sector for a relaxation of the tight monetary policy regime in the light of weak consumer demand, fragile economic growth and high rate of unemployment.
The Monetary Policy Committee of the CBN on Tuesday reduced the Monetary Policy Rate, also known as the benchmark or main interest rate, from 14 per cent to 13.5 per cent.
The MPR, which is used to determine bank lending rates and the cost of credit for borrowers, had been held at a record high of 14 per cent since July 2016, when it was hiked by 200 basis points from 12 per cent.
The CBN Governor, Mr Godwin Emefiele, who announced the decision of the MPC at the end of a two-day meeting in Abuja, explained that six members out of 11 who attended the meeting agreed to reduce the current monetary policy stance.
He said while the MPR was reduced to 13.5 per cent, the committee decided to retain the Cash Reserves Ratio at 22.5 per cent, the liquidity ratio at 30 per cent, and the asymmetric window at +200 and -500 basis points around the MPR.
Yusuf, who said that the reduction held no much significance, however, added that it was symbolic because the CBN with such policy thrust had shifted focus from economic stability to economic growth.
He called for the adjustment of other monetary instruments such as Liquidity Ratio and Cash Reserves Ratio.
He said, “We acknowledge that this reduction is not materially significant, but it has a symbolic and signalling value. It is gratifying to note the shift in policy focus by the Central Bank of Nigeria from stability to growth.
“This is the appropriate policy choice at this time. The reality is that the economy is currently characterised by fragile growth at 2.3 per cent, unemployment at 23.1 per cent and youth unemployment at 36.5 per cent, high dependence on crude oil export; weak diversification and high poverty incidence.”
Yusuf said the economy needed both monetary and fiscal stimulus at this time, arguing that the major monetary policy instruments – Cash Reserves Ratio and Liquidity Ratio – were still high at 22.5 per cent and 30 per cent respectively as well as being in tightening mode.
He expressed the hope that other monetary instruments would be adjusted over time.
He added, “We expect that other monetary instruments will be adjusted over time. Economic policies are typically characterised by tradeoffs. Policy choices are driven by what is the utmost economic objective at a given point in time. The priority at this time is to stimulate growth.”
Yusuf also said it was important to address the misalignment between the banking system activities, stimulation of economic growth and promotion of economic inclusion.
He described as abnormal the situation in which the nation had a prosperous banking system in the midst of a stagnating economy.
He said, “The current configuration of the financial system and financial intermediation actions are not in tandem with poverty reduction goals, economic inclusion and the job creation objectives.
“Financial intermediation is about ensuring the flow of financial resources from the surplus segments of the economy to the deficit sectors. But this is not the case in the Nigerian economy.
“A significant portion of credits to the economy is still going to the government, the large enterprises and the oil sector which have very weak leakages within the economy. These are fundamental monetary policy challenges that need to be addressed.
“The MPC report indicates that in February, net domestic credit to the government grew by 17.2 per cent while credit to the private sector grew by 6.4 per cent. A situation where the government takes a large chunk of the credits in the economy is not a healthy one.”
Yusuf, however, commended the stability of the exchange rate over the last couple of months, warning that the foreign exchange policy did not inadvertently perpetuate the import dependence character of the economy.
He added, “We commend the moderation of inflation over the past few months. We request that the challenge of investment risk across all sectors of the economy be addressed.
“The fiscal and monetary authorities need to work collaboratively to moderate investment risk in the economy. This is very critical to boost the flow of credit to the private sector, boost investment growth and create jobs.”