The Lagos Chamber of Commerce and Industry, LCCI, says the recent reduction of the Monetary Policy Rate, MPR, from 14 percent to 13.5 percent 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.
In a statement signed by its Director-General, Mr. Muda Yusuf, he said though the reduction is insignificant, it is however an indication that the CBN was shifting focus from economic stability to economic growth.
It would be recalled that the Monetary Policy Committee, MPC of the CBN had on Tuesday reduced the MPR from 14 per cent to 13.5 per cent but retained the Cash Reserve Ratio at 22.5 percent and Liquidity Ratio at 30 percent.
The MPR had been held at a record high of 14 per cent since July 2016, when it was hiked by 200 basis points from 12 per cent.
Yusuf however called for the adjustment of other monetary instruments such as Liquidity Ratio and Cash Reserves Ratio, saying: “We acknowledge that this reduction is not materially significant, but it has a symbolic and signalling value. It is gratifying to note the shift in policy focus by the Central Bank of Nigeria from stability to growth.
According to Yusuf, the economy needed both monetary and fiscal stimulus at this time, arguing that the major monetary policy instruments – Cash Reserves Ratio and Liquidity Ratio – were still high at 22.5 per cent and 30 per cent respectively as well as being in tightening mode.
“We expect that other monetary instruments will be adjusted over time. Economic policies are typically characterised by tradeoffs. Policy choices are driven by what is the utmost economic objective at a given point in time. The priority at this time is to stimulate growth.”
Continuing, the LCCI MD contended that it was important to address the misalignment between the banking system activities, stimulation of economic growth and promotion of economic inclusion, describing as abnormal the situation in which the nation had a prosperous banking system in the midst of a stagnating economy.
“The MPC report indicates that in February, net domestic credit to the government grew by 17.2 per cent while credit to the private sector grew by 6.4 per cent. A situation where the government takes a large chunk of the credits in the economy is not a healthy one.”
On the stability of the exchange rate over the past few months, Yusuf said it was commendable but warned that the foreign exchange policy did not inadvertently perpetuate the import dependence character of the economy.
“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”, Yusuf said.