LCCI, NECA: Hiking Interest Rate Contradicts Tinubu’s Pledge to Evolve Credit Driven Economy

Dike  Onwuamaeze

Two critical stakeholders in Nigeria’s organised private sector (OPS), the Lagos Chamber of Commerce and Industry (LCCI) and the Nigeria Employers’ Consultative Assembly (NECA), have described the recent hike in the Monetary Policy Rate (MPR) by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) as a contradiction to President Bola Ahmed Tinubu’s avowed commitment to make credit available to businesses and individuals at affordable rate.

They also stated that continued increase in MPR could be chaotic to the growth trajectory of the nation.

Tinubu promised on May 29 during his presidential inaugural address that “monetary policy needs thorough house cleaning.  Interest rates need to be reduced to increase investment and consumer purchasing in ways that sustain the economy at a higher level.”

But the CBN’s Monetary Policy Committee raised its benchmark interest rate by 25 basis points to 18.75 per cent from 18.50 per cent, the highest rate since MPR was adopted in 2006. This is also the fourth consecutive rate hike so far this year and the eighth consecutive rate hike since April 2022.

The Director General of LCCI, Dr. Chinyere Almona, said yesterday in a public statement titled ‘LCCI’s Statement on CVN’s July 2023 Interest Rate Hike’, that “the significant adjustment in the asymmetric corridor could restrict credit and cap liquidity with implications on local businesses. This is a contradiction to the new administration’s promise of a low-interest rate to lay the foundation for a robust credit economy.”

Almona noted that the headline inflation rate accelerated for the sixth consecutive month to 22.79 per cent between January and June 2023, and is expected to rise further due to subsidy removal, exchange rate harmonisation, and the anticipated impact of the palliative distribution in the near term.

She, therefore, averred that “the CBN should moderate the key rate given the weak relationship between it and inflation, especially after manufacturers and other businesses are groaning under high operating costs, low growth, and more especially in the face of high unemployment.

“Furthermore, monetary policy alone appears insufficient to guarantee the desired results of low, stable, and predictable prices. We are of the view that structural rigidities around infrastructure and agriculture should be explored and tackled to rein in inflation.”

She added that “the option to continue to hike the policy rate came amid a slight downgrade of the country’s growth projection to 2.8 per cent by the World Bank.”

Speaking in the same vein, the Director General of NECA, Mr. Adewale-Smatt Oyerinde, in a public statement titled ‘MPR BY CBN: NECA Urges Pro-Growth Intervention’, said that such increase could be chaotic to the growth trajectory of the nation.   

Oyerinde said that it is apt that the apex bank should collaborate with fiscal authorities in addressing the fundamentals behind the persistent increase in consumer prices, which has defied the policy measures put in place by previous rate hikes.

He said: “In our view, high cost of borrowing is injurious for business growth. Amid tough business conditions, small and medium enterprises need to be supported with relatively low interest rates to stimulate access to liquidity.

“So, rather than supporting any future hikes in the MPR, the apex bank should collaborate with relevant government agencies in addressing supply-driven inflationary factors such as high energy prices; high costs of logistic and FX pressure amongst others.

“The focus should be driving up investment and ensuring the sustainability of local businesses as one of the key elements to improving economic stability.

He added that tightening monetary policy stance by raising the anchor rate has proved ineffective, as inflation has been rising steadily and could climb as high as 25 per cent before year end.

“The focus of CBN should be on tackling the structural drivers of inflation, mostly the supply-side. In the light of hardship being experienced by the populace, it would have been appealing that the CBN retain the MPR for a while, in order to observe the impact of the current (presidential) executive orders on the economy.

“We also understand the CBN’s stance that raising interest rates is needed to attract foreign inflows into the economy to moderate pressure on the foreign exchange rate,” he said.