CBN’s decision on MPC will not stimulate growth – OPS

The Director-General, Lagos Chamber of Commerce and Industry, Muda Yusuf, made the observation in an interview with the News Agency of Nigeria in Lagos on Friday

The Organised Private Sector said the outcome of the Monetary Policy Committee meeting was the Central Bank of Nigeria’s fixation on inflation at the expense of stimulating growth and investment.
The Director-General, Lagos Chamber of Commerce and Industry, Muda Yusuf, made the observation in an interview with the News Agency of Nigeria in Lagos on Friday.
The apex bank’s MPC after its meeting on January 24 retained Monetary Policy Rate at 14 per cent, Cash Reserve Ratio at 22.5 per cent and Liquidity Ratio at 30 per cent.
The apex bank had maintained a hold stance on all key indicators since July 26, 2016 in its bid to control inflation.
According to Yusuf, the policy stance is not in consonance with the desire to stimulate growth, boost output, create jobs and lift investors’ confidence.
Yusuf said: “The outcome of the MPC meeting of January was expected, but it was the first major trigger of anxiety in the year for the private sector.
“The decision was a reaffirmation of the unyielding stance of the CBN on its foreign exchange policy despite all entreaties.
“Investors in the economy have complained incessantly that the cost of fund remains a major challenge among other impediments.
“They have complained persistently about liquidity challenges in the foreign exchange market.
“They insist that monetary tightening is hurting their businesses, especially at a time when high energy cost and currency depreciation are eroding profit margins.”
However, Yusuf acknowledged the apprehension of the apex bank about the risk of inflation to monetary policy easing.
He said: “Times like these demand that we should worry more about growth, jobs and output, than inflation. In any event, an increase in output will have a moderating effect on inflation.
“It is hard to boost domestic investment with interest rates that range between 18 per cent and 30 per cent (depending on the profile of the organisation) especially in the real sector.
“The impact of high interest rate on investors is still not being adequately appreciated by the monetary authorities.
“Many investors depend on bank loans for the acquisition of fixed assets, machinery and working capital.”
According to Yusuf, high interest rate is a contributory factor to the rising level of non-performing loans in the banking system.
He said: “The projection by the International Monetary Fund for the industry ratio NPL was 12.1 per cent for December 2016, as against the prudential limit of 5 per cent.
“Many of the businesses that ended up with Asset Management Corporation of Nigeria were victims of high interest rate. We need the investors to turn things around in the economy.
“This will not happen if we continue to perpetuate a regime of high interest rate.”
Yusuf said that the MPC decision had triggered worries about the much expected harmonisation of monetary, fiscal and trade policies, promised by President Muhammadu Buhari in his budget address to the National Assembly.
He stated: “It is difficult to see any significant alignment between the Economic Recovery and Growth Plan and the direction of monetary policy.
“Yet, this alignment is critical to moving the economy forward in 2017.”

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