The Lagos Chamber of Commerce and Industry (LCCI) has commended the Central Bank of Nigeria (CBN) over its decision to reduce the Monetary Policy Rate (MPR) by 50% basis point from 14% to 13.5%.
The Director-General of the Chamber, Mr. Muda Yusuf who made the commendation in a statement in Lagos on Wednesday said that the development was in consonance with the clamour by the private sector for a relaxation of the tight monetary policy regime in the light of weak consumer demand, fragile economic growth and high rate of unemployment.
While acknowledging that the reduction was not materially significant, but had a symbolic and signalling value, Yusuf added that it was gratifying to note the shift in policy focus by the Central Bank of Nigeria from stability to growth even as he observed that “this is the appropriate policy choice at this time”.
According to him,” The reality is that the economy is currently characterized by fragile growth at 2.3%; unemployment at 23.1% and youth unemployment at 36.5%; high dependence on crude oil export; weak diversification and high poverty incidence. The economy needs both monetary and fiscal stimulus at a time like this.
“Although, the major monetary policy instruments – CRR and Liquidity Ratio – are still high at 22.5% and 30% respectively and in tightening mode, the reduction in the MPR has a symbolic and signaling significance. We expect that other monetary instruments will be adjusted over time”.
Acknowledging that economic policies were typically characterized by trade-offs, he however pointed out that policy choices were driven by what was utmost economic objective at a given point in time saying that the priority at this time was to stimulate growth.
The DG contended that it was also important to address the mis-alignment between the banking system activities, stimulation of economic growth and promotion of economic inclusion even as he posited that a prosperous banking system in the midst of a stagnating real economy was not a good commentary on the quality of economic management.
“The current configuration of the financial system and financial intermediation actions are not in tandem with poverty reduction goals, economic inclusion and the job creation objectives. Financial intermediation is about ensuring the flow of financial resources from the surplus segments of the economy to the deficit sectors. But this is not the case in the Nigerian economy.
“A significant portion of credits to the economy is still going to government, the large enterprises and the oil sector which have very weak leakages within the economy. These are fundamental monetary policy challenges that need to be addressed.
“The MPC report indicates that in February, net domestic credit to government grew by 17.2% while credit to the private sector grew by 6.4%. A situation where the government takes a large chunk of the credits in the economy is not a healthy one”, he added.
While commending the stability of the exchange rate over the last couple of months, Mr. Yusuf however maintained that it was imperative to caution that the foreign exchange policy does not inadvertently perpetuate the import dependence character of the economy.
He continued, “We commend the moderation of inflation over the past few months. We request that the challenge of investment risk across all sectors of the economy be addressed. The fiscal and monetary authorities need to work collaboratively to moderate investment risk in the economy. This is very critical to boost the flow of credit to the private sector, boost investment growth and create jobs”.
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