The Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) has raised serious concerns regarding the recent decision by the Central Bank of Nigeria (CBN) to increase the country’s Monetary Policy Rate (MPR) from 22.75% to 24.75%. The business association has warned that this hike could lead to a range of negative economic consequences, including heightened inflation, reduced access to credit, and stifled business growth.
In a statement responding to the CBN’s policy changes, which also included an increase in the Cash Reserve Ratio (CRR), NACCIMA’s National President, Dele Oye Esq., argued that the CBN’s current approach to managing inflation and liquidity may be having unintended adverse effects on the private sector. He emphasized that the central bank’s focus should be on addressing the excessive liquidity that largely originates from public sector borrowing and spending, rather than using broad-based tools that negatively impact the private sector’s access to affordable credit.
While the CBN’s primary goal for the MPR hike was to tackle rising inflation in Nigeria, Oye pointed out that the policy would likely lead to several undesirable outcomes. These include a sharp increase in the cost of borrowing for businesses, a further tightening of credit availability, and a subsequent rise in consumer prices. These effects could ultimately contribute to inflation rather than mitigate it.
Specifically, Oye highlighted the following implications of the CBN’s policy changes:
- Increased Borrowing Costs: With the higher MPR, the interest rates on existing loans are set to rise, further escalating the cost of capital for businesses. This development could discourage entrepreneurship, deter investment, and hinder expansion plans, which are crucial for economic growth and job creation.
- Restricted Access to Credit: The increase in the CRR has reduced the capacity of banks to lend, further limiting access to finance for the private sector. This credit squeeze could worsen the financial challenges already facing businesses, especially small and medium-sized enterprises (SMEs).
- Pass-Through Inflation Effects: As businesses bear the brunt of higher borrowing costs, they may be forced to pass these costs on to consumers through increased prices for goods and services, thus fueling inflation.
- Stifled Economic Growth: The tighter monetary policy could result in reduced investment and consumption, key drivers of economic activity. This reduction may slow the country’s economic recovery and dampen the prospects for long-term prosperity.
NACCIMA’s president also suggested that the CBN adopt a more focused and targeted strategy to address liquidity issues, particularly those stemming from the public sector, without further burdening the private sector. He urged that policy changes should be more clearly communicated and reviewed on a regular basis, ensuring that the perspectives of business stakeholders are considered in the decision-making process.
While NACCIMA acknowledges the CBN’s responsibility to stabilize prices, the association called for a reassessment of the current measures to create a more business-friendly environment that supports private sector growth. NACCIMA reaffirmed its commitment to working with the CBN and the Ministry of Finance to find lasting solutions that would promote sustainable economic development and prosperity for Nigerians.
