Centre for The Promotion of Private Enterprise (CPPE) has lauded the Central Bank of Nigeria (CBN), and its Monetary Policy Committee (MPC) on the recent decision to lower Monetary Policy Rate (MPR), and reduce Cash Reserve Ratio (CRR), noting that the development would enable banks offer lower lending rates.
At its meeting held recently, MPC had announced a 50-basis-point reduction in the MPR from 27.5 percent to 27 percent, while also adjusting the asymmetric corridor to +250/-250 basis points around the MPR.
The committee also cut the Cash Reserve Ratio (CRR) of commercial banks by 500 basis points, from 50 percent to 45 percent, while retaining the CRR for merchant banks at 16 percent and maintaining the liquidity ratio at 30 percent.
Commenting on the decision, in a statement signed by its Chief Executive Officer, Dr. Muda Yusuf, on Tuesday, CPPE believed it would go a long way in expanding the nation’s banks’ capacity to create credit, lower lending rates and make financing more accessible for businesses, especially SMEs.
It described the development as marking a significant policy shift toward supporting growth and investment, following an extended period of aggressive monetary tightening to rein in inflation.
The Centre also commended the introduction of a 75 percent CRR on non-TSA public sector deposits, aimed at containing excess liquidity risks that could arise from fiscal operations, noting the action would prevent volatility in money supply growth that could undermine recent progress in price stability.
It described the policy easing as necessary and logical, since high interest rates, in recent quarters, had significantly constrained private sector credit, increased the cost of funds, and weighed on business expansion.
CPPE noted that by easing credit conditions, the apex bank is deliberately working to improve liquidity conditions, reduce borrowing costs, and unlock capital for productive sectors of the economy.
It also expressed the belief that lowering MPR and CRR would boost investment by lowering cost of funds, which, it added, would encourage new investments, support business expansion, enhance capacity utilization in the real sector, and, ultimately, stimulate output growth and job creation.
Besides, the Centre also argued that the policy would strengthen financial intermediation and provide the much-needed complementary fiscal measures.
“A more accommodative monetary environment will enable banks to fulfill their core function of mobilizing savings and channeling them into productive investments, reinforcing financial deepening and economic growth.
“The decision to impose a 75 percent CRR on non-TSA public sector deposits is a prudent measure to prevent excessive fiscal-driven liquidity injections from destabilizing the financial system,” it stated.
The Centre, however, stressed the need for the apex bank to ensure fiscal policy play a complementary role to fully unlock growth potential.
It expressed the firm belief that the ‘well-timed’ policy shift, if sustained, would stimulate economic growth, enhance job creation, while also improving private sector performance and output.
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