The Centre for the Promotion of Private Enterprise has commended the Monetary Policy Committee of the Central Bank of Nigeria for pausing rate hikes.
The Chief Executive Officer of CPPE, Dr Muda Yusuf, gave the commendation in an interview with the News Agency of Nigeria on Friday in Lagos.
He, however, called for future reductions and expressed reservations regarding the Cash Reserve Ratio rates.
Yusuf said that the CBN’s decision to pause rates aligned with the centre’s expectations.
“This is within the context of the fact that, given the recently rebased inflation rate computation, we have seen a decline in inflation to 24.48 per cent, which is currently less than the monetary policy rate.
“So, I think it makes sense to retain the rates so that we don’t further exacerbate the pressure of interest rates on businesses and other citizens with exposure to the banks.
“But going forward, I think we should begin to see a moderation in the rates, we should now begin to see a relaxation of these tightening measures,” he said.
He emphasised that it is not acceptable to have Monetary Policy Rate (MPR) rates higher than the inflation rate.
“That is tightening the noose too much on investors in the economy,” he said.
Yusuf stressed the need for the apex bank to target a gradual reduction of the MPR and a relaxation of the CRR during its next MPC meeting in May.
He noted that there were already indications that some prices, including energy, diesel, PMS, and pharmaceuticals, were beginning to drop.
According to him, maintaining the stability of the exchange rate can lead to further price reductions in other products.
He expressed optimism about the development, saying the inflation outlook appears better.
“So, within that context, we expect that the CBN will relax some of these rates by the next MPC meeting,” he said.
He, however, expressed concern that the Cash Reserve Ratio (CRR) at 50 per cent is the highest globally.
“I don’t think we should continue on that trajectory. There is no justification for it. Our economic or macroeconomic situation is not so dire as to warrant such an outrageous level of CRR.
“The closest to Nigeria’s CRR of 50 per cent is Turkey’s, which is just 25 per cent. Going forward, I think the CRR needs to be reduced,” Yusuf noted.
He also observed that the asymmetric corridor of +500/-100 basis points is too wide: “If the MPR is already at 27.5, an asymmetric corridor at +500 basis points is not healthy.
“Going forward, I think these are things that we need to review because if we continue on this trajectory, we will be practically disconnecting the financial system from the real economy.
“And this will have a very serious impact on economic growth,” Yusuf added.
He advised the CBN committee to re-evaluate its decisions on tightening measures.
NAN recalls that the MPC, during its 299th meeting, retained the MPR at 27.50 per cent and the asymmetric corridor around the MPR at +500/-100 basis points.
The apex bank also retained the CRR of Deposit Money Banks at 50 per cent, Merchant Banks at 16 per cent, and the Liquidity Ratio at 30 per cent.
