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By Merit Ibe
Following the Central Bank of Nigeria’s recent increase of the interest rate from 22.75 per cent to 24.75 per cent, the Center for the Promotion of Private Enterprise (CPPE), has argued that too much tightening can suffocate.
The Chief Executive Officer of the Centre, Dr. Muda Yusuf, who commended the apex bank’s determination to combat the rising inflationary rate, also cautioned against underrating the full impact of monetary policy decisions, advising the bank to take a second look at the exchange rate for import duties.
He said the CBN should be more measured on monetary policy issues, stressing the need to define the limits of tightening and appreciate prevailing realities as far as banks, lending and entrepreneurship are concerned.
According to the CPPE boss, “Admittedly, there are some positives to the hike in the interest rate, but let’s not tighten to the point of suffocation.”
He insisted that any decision that would impact negatively on banks’ major role of financial intermediation should be very carefully considered.
“Cash Reserve Ratio (CRR) is currently 45 per cent. Liquidity ratio is 30 per cent, that is already 75 per cent, leaving banks with 25 per cent. This situation alone is a major risk to financial intermediation and even a risk to financial inclusion. As at February, prime lending rate was 26.6 per cent. What business can an entrepreneur do now, even trading, that would guarantee 30 per cent profit,” he said.
He stated further that high interest rate is a great disincentive to local investment, warning that some industrial firms and businesses would consequently be stuck or even close shops.
The CPPE boss canvassed the need to consider other ways of mitigating inflation, citing increase in output as one of such.
