Peter Obi, the presidential candidate for the Labour Party in the last general election, has expressed concern that raising the Monetary Policy Rate (MPR) and Cash Reserve Ratio (CRR) to 22.75% and 45% respectively will adversely affect the economy.
In a statement on Thursday, the former governor of Anambra State, said the sharp increase in MPR and CRR will result to job loss in the productive and manufacturing sector.
Obi mentioned that the increase in rate is counterproductive, adding that the policy will not address money supply challenges in the country.
Obi noted,
- “I am of the strong opinion that the recent decision of the Monetary Policy Committee to increase the Monetary Policy Rate, MPR, to 22.5% and the Cash Reserve Ratio, CRR, to 45% will further worsen the economic situation of most Nigerian households as it is bound to cause more job losses in the productive sector, especially manufacturing and other sectors that rely on bank loans and credit facilities for their funding needs.
- “Tightening liquidity in the financial system does not improve productivity, ie food production, which is the major cause of inflation in Nigeria.
- “Moreover, only about 12% of N3.6 trillion of the total money in circulation is in the banking system which means that 88%, about N3.2 trillion is outside the banking system.
- “So, this measure would rather be counterproductive as it would not address the intended purpose of managing the money supply.
- “These new measures will worsen the fragile economy as the supply of funds would dry up for the real sector, and the new MPR rate hike will push the interest rate on loans to above 30%, which would be very difficult for the real sector operators especially manufacturers and SMEs to repay; resulting, obviously, in increased bad loans, and worsening the nation’s economic situation.”
A Different Approach to Address Inflation
According to Obi, the CBN should have adopted a different approach to address the soaring inflation rate in the country.
What you should know
- The Central Bank of Nigeria (CBN) on Tuesday increased the monetary policy rate (MPR) by 400 basis points, setting it at an unprecedented 22.75%.
- Governor Yemi Cardoso of the CBN declared an adjustment that pushes the MPR to its peak, signaling the central bank’s determined efforts in monetary tightening to confront inflationary pressures.
- The apex financial institution also escalated the Cash Reserve Ratio (CRR) to 45%, a substantial leap from the prior 32.5%, while holding the liquidity ratio steady at 30%.
- With an inflation rate of 29.9% as of January 2024,the CBN believes that monetary tightening will help rein in on inflation, mop up money supply and address other economic challenges in the country. (Nairametrics)
