CPPE Cautions Against Rising Interest Rates Amid Growth Woes
The Centre for the Promotion of Private Enterprise (CPPE) has expressed concern over the Central Bank of Nigeria’s (CBN) latest hike in the Monetary Policy Rate (MPR) to 27.50%, cautioning that the continued tightening of monetary policy could hinder economic growth.
Dr. Muda Yusuf, Chief Executive Officer of CPPE, voiced these concerns in Lagos on Tuesday, following the announcement of the new rate at the CBN’s 298th Monetary Policy Committee (MPC) meeting. He warned that the persistent rise in interest rates could exacerbate challenges faced by critical sectors of the economy.
Struggles in the Real Economy
Yusuf highlighted the mismatch between the financial sector’s growth and the struggles of key industries. “The GDP sectoral performance report reveals a glaring disconnect between the financial services sector and the real economy,” he noted.
While the financial services sector grew by an impressive 32% in the third quarter, agriculture and manufacturing expanded marginally by just 1.14% and 0.92%, respectively. Other critical sectors, such as real estate, air transport, and textiles, either slowed significantly or remained in recession.
“This disposition will deepen these distortions,” Yusuf stated, adding that these sectors require monetary and fiscal support, not the additional pressure of tightened monetary conditions.
The Policy Landscape
At its meeting, the MPC not only raised the MPR by 25 basis points to 27.50% but also retained other key parameters:
- Cash Reserve Ratio (CRR): 50% for deposit money banks and 16% for merchant banks.
- Liquidity Ratio: Held steady at 30%.
- Asymmetric Corridor: Maintained at +500/-100 basis points around the MPR.
The central bank explained that these measures are necessary to combat inflationary pressures and stabilise the economy. However, Yusuf countered that the tightening stance ignores the declining performance of critical sectors highlighted in the recent GDP report.
Calls for Targeted Support
Yusuf urged the CBN to enhance its support for development finance institutions to alleviate the funding challenges faced by industries. “Strategic sectors such as agriculture, manufacturing, and real estate need targeted monetary and fiscal interventions,” he said.
He emphasised the need for a balanced approach that addresses inflation without stifling growth, arguing that the CBN’s focus on tightening monetary policy could have adverse long-term consequences on job creation and economic stability.
A Balancing Act
While the central bank’s actions aim to curb inflation, they highlight a critical trade-off between stabilising prices and fostering growth in vulnerable sectors. The CPPE’s warning serves as a reminder of the delicate balancing act required in policymaking, especially in a struggling economy like Nigeria’s.
The next MPC meeting is anticipated to draw closer scrutiny as stakeholders await further clarity on how the CBN plans to support real-sector growth amidst its inflation-targeting measures. PH Refinery Begins Product Dispatch, Marks New Milestone
