The Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) has voiced its apprehension regarding the recent hike in the Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN), cautioning that such a move could have adverse effects on the country’s private sector.
In a press release issued on Tuesday, the president of NACCIMA, Dele Oye, expressed deep concern over the decision to increase the MPR to 24.75%, alongside raising the Cash Reserve Ratio (CRR) to 45%. Oye warned that these adjustments could potentially unleash severe repercussions on private enterprises operating within Nigeria.
“The increase in MPR to 24.75% and Cash Reserve Ratio to 45% will have severe repercussions on private businesses in the country. The private sector has been sidelined from the decision-making process of the apex bank,” he stated.
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Moreover, Oye noted that NACCIMA had previously communicated its reservations to the CBN governor regarding the initial MPR hike to 22.75%, in a letter dated March 13, 2024. The association’s stance remains firm, contending that such policies could inadvertently trigger inflationary pressures, compelling businesses to escalate prices of goods and services to mitigate the escalated borrowing costs.
NACCIMA enumerated four primary concerns regarding the implications of the MPR hike:
Increase in the Cost of Borrowing: Existing loans would incur higher interest rates, thereby elevating the cost of capital for businesses. This scenario discourages entrepreneurial endeavors and expansion plans critical for economic growth and employment generation.
Restricted Credit Availability: With the augmentation of the CRR, banks’ lending capacity is further constrained. This exacerbates the prevailing challenges faced by the private sector, characterized by limited access to finance.
Pass-Through Effects on Inflation: Elevated interest costs borne by businesses necessitate passing on these expenses to consumers through elevated prices for goods and services. Such a phenomenon can contribute to inflation rather than mitigate it.
Stifling Economic Growth: Constricted monetary conditions might precipitate diminished investment and consumption, pivotal drivers of economic expansion. This could potentially impede economic recovery and undermine prospects for prosperity.
In light of these concerns, NACCIMA proffered recommendations to the CBN governor, advocating for a nuanced and targeted approach aimed at alleviating liquidity constraints within the public sector, while mitigating adverse impacts on the private sector.
“Our recommendation is that the CBN should pursue a more nuanced and targeted approach, focusing on mechanisms that specifically address the liquidity issues in the public sector without placing undue burden on the private sector,” Oye said.
“Additionally, policy directions should be clear and communicated on a quarterly basis, with a robust stakeholder engagement strategy to ensure that the views and concerns of the private sector are considered in policy formulation.”
The apprehension voiced by NACCIMA echoes concerns raised earlier in March when the association penned a missive to Cardoso regarding the MPR and CRR increments, and their ramifications on private enterprises within the country.
At that time, the CBN had raised the MPR to 22.75% from 18.75%, while maintaining the liquidity ratio at 30%. NACCIMA had advised adopting a more comprehensive strategy in combating inflation, proposing alternative measures such as issuing FAAC allocation in vouchers, implementing zero-coupon stabilization, resolving custom import duty issues, and initiating a corporate bond refinancing program.
However, Cardoso, speaking of these concerns, assured that the current tightening measures would not be prolonged and would be relaxed upon substantial improvements in the economy concerning inflation and exchange rates. He said there is collaboration between fiscal and monetary policies to achieve sustainable economic outcomes.
He stated, “While the increase in interest may have tendencies of strangulating the economy, with the foreign exchange rate coming down, that also helps to moderate it overall.”
“And I said earlier, you would expect that this would not be too long drawn at least I would hope so. We are getting towards a situation where the exchange rate, it is moderating, and we are expecting it to moderate and then it find a level which quite frankly is sustainable. This would involve huge collaboration with the fiscal side because a lot of that cannot just rely on the monetary side alone.”