OPS Calls for Lower Interest Rates to Spur Growth

Members of the organized private sector argue that the Central Bank of Nigeria should lower the current 27.50 percent interest rate to stimulate economic expansion.

In separate interviews with The PUNCH The OPS urged the Monetary Policy Committee, responsible for determining the monetary policy rate, to indicate economic support through a gradual decrease in the MPR.

As stated by MPC member Mustapha Akinkunmi, Nigeria’s MPR serves as a benchmark for lending rates and holds the fifth-highest position worldwide.

The PUNCH reported that Akinkunmi revealed that Nigeria’s rates were only lower than those of Argentina (29 per cent), Zimbabwe (35 per cent), Turkey (45 per cent), and Venezuela (59.4 per cent).

Ahead of the MPC’s next meeting on May 19 and 20, the OPS has encouraged lower emphasis on monetary policy orthodoxy, harmony with fiscal policies and a lowered cash reserve ratio to support business expansion.

The president of the Lagos Chamber of Commerce and Industry, Gabriel Idahosa, criticised the double-digit MPR, stating that it signalled economic challenges. “Double-digit MPR means there are economic challenges. It should not have been double-digit in the first place,” Idahosa said.

He argued that the classical economic theory of increasing interest rates to curb inflation had not worked for Nigeria. “The MPR had no effect in reducing inflation because the economy is highly import-dependent,” he remarked, adding that the CBN must focus on attracting investments rather than relying solely on MPR adjustments.

Idahosa went on to say that certain inflationary elements, such as exchange rates, have started to stabilize thanks to measures implemented by the CBN.

Nevertheless, he maintained that a step-by-step decrease in the MPR was essential to alleviate production expenses and stimulate economic development. "Nigeria’s sluggish expansion is due to manufacturers being unable to bear the cost of borrowing at such interest rates," he noted. He further suggested lowering the MPR by 25 basis points as an indication of this transition.

In similar fashion, Adewale Oyerinde, the Director-General of the Nigeria Employers' Consultative Association, highlighted that keeping a elevated MPR for an extended duration might hinder economic expansion and restrict companies from obtaining credit.

"A sustained strict monetary policy will continue to restrict business growth and reduce access to credit, especially for small and medium-sized enterprises that are crucial for generating jobs and fostering economic development," cautioned the NECA DG.

Oyerinde encouraged the MPC to explore a gradual decrease in the MPR, suggesting reductions ranging from 150 to 250 basis points (1.5% to 2.5%).

He noted that global monetary trends indicated a gradual easing of policies to boost economic activity, and Nigeria risked being left behind if it failed to adopt a balanced approach. “A well-communicated policy direction will mitigate uncertainties and encourage long-term economic planning by the private sector,” he added.

At the same time, Dr. Muda Yusuf, who leads the Centre for the Promotion of Private Enterprise, warned about the risks associated with a high Cash Reserve Ratio (CRR). He characterized the present interest rate framework as untenable for fostering economic growth.

Yusuf teamed up with other OPS members to express concern that "the current interest rate framework does not adequately support vital industries like manufacturing and agriculture."

He pointed out that Nigeria has one of the highest CRRs in the world at 50 per cent, which he argued was impeding financial intermediation by banks. “Our economy is not the worst in terms of the macroeconomic environment. So, why should we carry the burden of the highest CRR globally? Something must be wrong somewhere,” he said, stressing the need to ease monetary policy to stimulate growth.

Segun Kuti-George, who serves as the National Vice President of the Nigerian Association of Small-Scale Industrialists, pointed out how elevated MPR adversely affects enterprises. He mentioned that this situation deters lending, escalates manufacturing expenses, and diminishes consumer demand. "High borrowing rates lead to business contraction and increased joblessness," he emphasized.

Even though Kuti-George recognized that elevated interest rates might decrease monetary flow and curb inflation, he pointed out that this strategy hadn’t proven effective in Nigeria. "Despite the CBN incrementally raising the MPR, inflation hasn't dropped considerably," he remarked.

Moreover, Dr. Femi Egbesola, who leads the Association of Small BusinessOwners in Nigeria, voiced his worries about the elevated MPR, suggesting that it dampened investment and hindered creativity.

" unlike several of our counterpart countries which keep lower interest rates to bolster their domestic industries, our enterprises struggle with costly funding," Egbesola argued.

The president of ASBON advocated for a well-balanced strategy, integrating supportive financial measures, enhanced infrastructure development, and focused business incentives to foster sustainable progress. He argued that "merely maintaining high-interest rates won’t address Nigeria’s economic issues; rather, it will hinder economic activities even more."

As the upcoming Monetary Policy Committee meeting approaches, participants from the private sector are urging the Central Bank of Nigeria to consider gradually lowering interest rates. They believe this move could stimulate business expansion, attract more investments, and enhance overall economic progress.

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