An official of Lagos Chamber of Commerce and Industry (LCCI) has said the retention of the Monetary Policy Rate (MPR) at 14 per cent by CBN was a shock to the business community.
Dr Vincent Nwani, Head of Research, LCCI told the News Agency of Nigeria (NAN) on Wednesday in Lagos that the retention was a challenge to businesses.
According to him, the retention is not in tandem with Federal Government’s Economic Growth and Recovery Plan (EGRP).
Nwani said the business community expected the meeting to complement government’s economic recovery plan geared towards growth, recovery, macroeconomic stability and market-determined exchange rate regime.
NAN recalls that the CBN, on Tuesday, retained the MPR at 14 per cent, Cash Reserve Requirement at 22.5 per cent and Liquidity Ratio at 30 per cent.
The apex bank had on July 26, 2016, increased MPR from 12 per cent to 14 per cent and had since maintained the rate in its bid to check inflationary pressure.
Nwani said, “The EGRP launched by government two weeks ago indicates reduction of interest rate, flexible exchange rate and removal of 41 items from restriction lists.
“The business community expected the CBN to complement the new and much celebrated plan launched by the government.
“It was a shock to the business community because high interest rate is adverse to businesses, investment and the economy,” he said.
He argued that CBN’s intervention in the foreign exchange market that led to a crash in the price of the dollar to naira would reduce inflation in the long run.
“In the last few weeks, we have seen exchange rate dropping gradually; theoretically, it will take three months for that drop to translate to cost.
“Our expectation is that as long as CBN continues to intervene through supply of foreign exchange to the market, rates will drop and this over the next 90 days should have impact on inflation especially on cost of raw materials.
“The current inflation is not really bad but what is bad is uncertainty about inflation, that is, the inability of businesses and stakeholders to know whether inflation will rise or decrease at will.
“There are some elements of inflation that goes with growth, if it is coming with growth we have no problem, our challenge is when inflation is there and the economy is in recession.
“What CBN has done is to keep rate high so that people that bring money from overseas to get government bonds and treasury bills will keep having a free day.
“This, by my understanding, is not the best approach to get the economy out of recession,” Nwani said.