Retaining 14% interest rate will hurt the economy
Central Bank of Nigeria (CBN’s) retention of Monetary Policy Rate (MPR) at 14 per cent will stagnate businesses, an ex-official of the Manufacturers’ Association of Nigeria (MAN) has warned.
Mr John Aluya, a former Chairman of the Apapa Branch of MAN told the News Agency of Nigeria (NAN) on Wednesday in Lagos that high lending rate would inhibit business development.
On July 26, CBN increased the MPR by 200 basis points, from 12 per cent to 14 per cent, to combat inflation and stimulate growth.
After a meeting on Nov. 22, the Monetary Policy Committee of the apex bank retained MPR at 14 per cent, Cash Reserve Ratio at 22.5 per cent and Liquidity Ratio at 30 per cent.
The bank has retained the rate at two consecutive MPC meetings.
MPR is the benchmark rate at which commercial banks can borrow from the central bank to boost the level of liquidity in the economy.
“High lending rate is a product of high MPR.
“There is no way a bank will lend to manufacturers at single digit rate when it can invest its money in sovereign debt at 14 per cent.
“Government cannot promote economic activities in this situation because businesses will not thrive; SMEs cannot borrow at 25 or 30 per cent and survive,” Aluya said.
The manufacturer warned that maintaining a tight hold on MPR would prolong the economic recession of the country.
“CBN has to loosen up; in a period of recession, government has to spend more to reflate the economy, to create jobs and opportunities.
“Retaining rates will not take the economy out of recession,” he said.