..Commends CBN On MPR Cut
Yemisi Izuora
The Lagos Chamber of Commerce and Industry, LCCI, has noted that the national economy is currently characterized by fragile growth at 2.3 per cent with unemployment at 23.1 per cent and youth unemployment at 36.5 per cent and high dependence on crude oil export.
The Chamber also observed weak diversification and high poverty incidence, indicating that the economy actually needs both monetary and fiscal stimulus at a time like this.
Commenting on the decision by the Central Bank of Nigeria, CBN, to reduce the Monetary Policy Rate (MPR) by 50 basis points from 14 per cent to 13.5 per cent, the LCCI director general, DG, Muda Yusuf, said this is 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.
Yusuf, acknowledged that the reduction is not materially significant, but it has a symbolic and signalling value, noting that it is shift in policy focus by the Bank from stability to growth and an appropriate policy choice at this time.
He said, “Although, the major monetary policy instruments – CRR and Liquidity Ratio – are still high at 22.5 per cent and 30 per cent respectively, are still high 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.
Economic policies are typically characterized by trade offs. Policy choices are driven by what is utmost economic objective at a given point in time. The priority at this time is to stimulate growth.”
Speaking further, Yusuf stated, “It is also important to address the mis-alignment between the banking system activities, stimulation of economic growth and promotion of economic inclusion. A prosperous banking system in the midst of a stagnating real economy is 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 economyto 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 needs to be addressed.”
The DG added that the MPC report indicates that in February, net domestic credit to government grew by 17.2 per cent while credit to the private sector grew by 6.4 per cent warning that a situation where the government takes a large chunk of the credits in the economy is not a healthy one.
The LCCI, however, commended the stability of the exchange rate over the last couple of months but cautioned that the foreign exchange policy does not inadvertently perpetuate the import dependence character of the economy. “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.” he concluded.