Director General of the Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, has condemned the decision of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to raise benchmark interest rate from 12 percent to 14 percent.
Rising from the 251st edition of its meeting on Tuesday in Abuja, the MPC raised the Monetary Policy Rate (MPR) otherwise known as benchmark interest rate by a surprising 200 basis points to 14 percent and maintained its existing Cash Reserve Ratios (CRR) for commercial banks in a bid to stabilise the naira.
However, while speaking with our correspondent on phone on Tuesday, Yusuf, who is an economist and private sector advocate, said that the MPC decision would further add to the problem businesses are already dealing with.
According to the LCCI director, I don’t support that decision, because it will hurt business more, because increasing the lending rate now is not what Nigerians and the businesses people desire.
“Businesses are currently struggling with the shocks from exchange rate adjustment, as well as the shocks from high energy costs, shocks from high import duty and also shocks from high transportation cost.
“We don’t quiet welcome additional hike in the interest rate. I don’t think it is good for businesses, I don’t also think it is good for the period that we are in, because already we are in threshold of recession. And I think what we should be doing at this time is to see how we can stimulate the economy growth and make cheaper fund available,” he noted.
He explained further that if a nation wanted to attract investment, even though there is high inflation rate, said, “There is a need to ensure that the lending rate is not negative, because I heard the CBN governor trying to argue that because of high inflation rate drive the decision, all these points are noted but I think what need to attract investors into the country is when the return from the investment is good, more investors will come.”
Investment is not only about portfolio investors, but also about real sector investors, and real sector would be looking more at the return from investment. And so much about the interest rate is negative or not.
“I believe the focus of policy should be how you can attract Foreign Direct Investments (FDIs) and what these people need is the right kind of frame work and consistent of policy”, he noted.
The apex bank ramped up its benchmark interest rate by a bigger than expected 200 basis points to 14 percent on Tuesday in a bid to underpin its battered currency and attract more investment.
Africa’s biggest economy last month ditched its 16-month-old dollar peg to let the naira trade freely and lure back foreign investors who fled both the equities and bond markets in the wake of the plunge in crude prices.
But the local currency has since plunged and the supply of dollars has dried up, putting pressure on the central bank to hike interest rates to attract investment.
Faced with the choice to spur growth by cutting rates or tackle galloping inflation, five out of eight members of the monetary policy committee opted for a rate increase, CBN governor Godwin Emefiele told newsmen after the meeting.
“We took a lot of time to deliberate on whether to favour growth against inflation,” he said.
“Members were of the view that an upward adjustment of interest rates would strongly signal not only the bank’s commitment to prize stability… but also its desire to gradually achieve positive real interest rates.”
By raising the benchmark the central bank hopes to lure back more foreign bonds investors although, with inflation hitting a decade-high of 16.5 percent in June, rates are still in negative territory.