The Centre for the Promotion of Private Enterprise has commended the Monetary Policy Committee of the Central Bank of Nigeria for pausing rate hikes.
Muda Yusuf, CPPE boss, gave the commendation in an interview on Friday in Lagos.
He, however, called for future reductions and expressed reservations regarding the Cash Reserve Ratio rates. Mr Yusuf said CBN’s decision to pause rates aligned with CPPE’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,” the CPPE chief said.
He stated that it was unacceptable to have MPR rates higher than the inflation rate.
“That is tightening the noose too much on investors in the economy,” he said.
Mr 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, petrol, and pharmaceuticals, were beginning to drop. According to him, maintaining the stability of the exchange rate could lead to further price reductions in other products.
He expressed optimism about the development, saying the inflation outlook appears better.
Mr Yusuf, however, expressed concern that the 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,” Mr Yusuf noted.
The CPPE chief also observed that the asymmetric corridor of +500/-100 basis points is too wide, noting that 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. This will have a very serious impact on economic growth,” Mr Yusuf added.
He advised the CBN committee to re-evaluate its decisions on tightening measures.
During its 299th meeting, the MPC 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 commercial banks at 50 per cent, merchant banks at 16 per cent, and the liquidity ratio at 30 per cent.