CPPE cautions, businesses need single-digit interest rate to grow economy
By Jeph Ajobaju, Chief Copy Editor
Businesses cannot survive without a single-digit interest rate, the Centre for the Promotion of Public Enterprise (CPPE) has warned, and urged the Central Bank of Nigeria (CBN) to fast track development finance for businesses to mitigate the effects of high monetary policy rate (MPR).
CPPE Director General Muda Yusuf made the point on CNBC Africa, where he stressed the importance of a single-digit interest rate to drive the Nigerian economy.
The CBN on May 13 raised MPR rate by 150 basis points to 26.25 per cent from 24.75 per cent, the third time in 2024 the apex bank has raised the rate in its hawkish push to rein in inflation.
Aggressive interest rate inimical to economic growth
Yusuf warned aggressive interest rate by the CBN stifles investment and affects the capacity of the economy to grow, adding the measures need to be mitigated with the creation of a development finance window to allow businesses access single-digit loans from the CBN.
“First of all,” he stressed, “both the fiscal and monetary authorities need to quickly expand the development finance window. I am not advocating that we go back to the era of massive, unregulated intervention funding by the CBN.
“However, we have to move very quickly and very deliberately to opening up the development finance window so that the real sector of the economy can have access to cheaper funds and funds that are of longer tenure.
“How on earth can anyone do business with an interest rate that is now around 30 per cent? What is the return of the investment, especially at a time like this?
“This is suffocating investment, production. And we don’t want to chase inflation to the complete detriment of those who are trying to produce or invest in the economy.
“Investing in the economy is not just about investing in financial instruments. We need to worry about those who are producing on the ground, those who are creating jobs.
“That’s why I think as we go with the monetary tightening, we need to create the development finance window so that businesses can have single-digit interest rate and longer tenure of funds ….
“Yes, we appreciate what the CBN is trying to do but to the extent that we’re still seeing an uptick in inflation rate and challenges around exchange rate depreciation. All of these indicate the limitations of monetary policy instruments.
“Yes, some progress has been made, but when you compare the progress that has been made with the aggressiveness of monetary policy, then you can see that it is not quite proportionate.
“These things are affecting the capacity of the economy to grow. [They are] affecting entrepreneurs. [They are] affecting their capacity to take risk.”
Cardoso justifies high interest rate
CBN Governor Yemi Cardoso explained after the 295th Monetary Policy Committee (MPC) meeting of the bank on May 21 that the Cash Reserve Ratio (CRR) of Deposit Money Banks (DMBs) was retained at 45 per cent, MPR at +100 and –300 basis points, and liquidity ratio of banks at 30 per cent.
He justified the third consecutive hike in bank interest rates in 2024 as part of efforts to moderate inflation, which reached 33.69 per cent in April 2024, according to the National Bureau of Statistics (NBS).
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