NECA, CPPE hail CBN rate cut, demand cheaper loans for businesses

By Bimbo Oyesola and Merit Ibe

The Nigeria Employers’ Consultative Association (NECA) and the Centre for the Promotion of Private Enterprise (CPPE) have welcomed the Central Bank of Nigeria’s (CBN) decision to cut the Monetary Policy Rate (MPR) from 26.5 per cent to 23 per cent, but stressed that the move must translate into cheaper credit for businesses.

The two business groups said the 350-basis-point reduction was a significant shift from the prolonged tight monetary policy stance, with the potential to ease financing costs, boost investment and support economic growth. However, they warned that the success of the rate cut would depend largely on how quickly commercial banks transmit the lower policy rate to lending rates.

Director-General of NECA, Adewale-Smatt Oyerinde, described the decision as a step in the right direction after a prolonged period of tight monetary conditions.

“For businesses that have faced elevated borrowing costs, the reduction in the MPR is a step in the right direction,” Oyerinde said.

“However, a lower policy rate does not automatically translate into cheaper credit for businesses.”

Similarly, the Chief Executive Officer of CPPE, Dr Muda Yusuf, said the 350-basis-point cut represented a major shift towards supporting growth, investment and economic recovery.

Yusuf said the decision was timely, particularly against the backdrop of the improving inflation trend and the high cost of maintaining a restrictive monetary policy.

He noted that the previous MPR of 26.5 per cent had become increasingly misaligned with inflation, which stood at about 15.4 per cent, and prevailing money-market rates of around 20 per cent.

“This weakened the signalling function of the policy rate and raised concerns about the effectiveness of monetary policy transmission,” he said.

According to Yusuf, the reduction should therefore be seen not only as monetary easing but also as an attempt to bring the policy rate closer to prevailing economic and financial market conditions.

Both organisations identified manufacturers and small and medium-sized enterprises (SMEs) among the businesses that could benefit significantly if banks reduce their lending rates.

Yusuf said high commercial lending rates had constrained investment, production, working capital and job creation, particularly in manufacturing, agriculture, construction and logistics.

“For many businesses, commercial lending rates have remained at levels that are difficult to reconcile with productive investment, particularly in manufacturing, agriculture, construction, logistics and other sectors with relatively long investment cycles and tight margins,” he said.

He said lower borrowing costs could improve business cash flows, stimulate investment and strengthen productive capacity.

Oyerinde, however, said businesses would be watching to see whether the CBN’s decision would lead to an actual reduction in the cost of borrowing.

“The transmission of the policy rate reduction to actual lending rates will be critical,” he said.

NECA also noted that the CBN retained the Cash Reserve Requirement (CRR) for Deposit Money Banks at 45 per cent, indicating that monetary conditions remained relatively tight despite the reduction in the benchmark rate.

The employers’ body said businesses continued to face other major cost pressures, including high energy and input costs, logistics challenges and foreign exchange-related expenses.

It urged the government to complement monetary easing with measures to address these structural constraints.

CPPE similarly warned that lower interest rates alone would not be enough to deliver sustainable economic recovery.

Yusuf identified energy costs, logistics bottlenecks, insecurity, food production constraints, infrastructure deficits and high regulatory costs as major factors driving inflation and business operating expenses.

He urged the government to combine the monetary policy adjustment with stronger fiscal and structural measures to reduce production costs and expand domestic productive capacity.

“This is critical to ensuring that monetary easing translates into investment and additional output rather than renewed inflationary pressure,” he said.

On government finances, Yusuf said a sustained moderation in interest rates could also reduce the cost of domestic borrowing and, over time, ease the Federal Government’s debt-service burden.

He said this could create more fiscal space for infrastructure, security, education, healthcare and other development priorities.

However, he cautioned that the benefit would depend on whether the lower MPR translates into reduced yields across the government securities market.

The CPPE chief also flagged possible pressure on the naira if the lower interest-rate environment weakens the attractiveness of Nigerian financial assets and triggers portfolio outflows.

He nevertheless said Nigeria was entering the current policy transition with stronger foreign reserves, greater stability in the foreign exchange market and improved external-sector buffers.

Yusuf urged the CBN to remain vigilant and use tools such as open-market operations when necessary to manage liquidity, prevent excessive volatility and support exchange-rate stability.

Both NECA and CPPE agreed that the real test of the CBN’s rate cut would be whether businesses begin to access credit at lower rates and whether this translates into higher investment, production and job creation.

NECA also called for further measures to ease the burden on manufacturers, with Oyerinde saying, “More strategic support is required to enhance access to finance and ease the burden on manufacturers.”