High Interest Rate will Hurt Economy, Says LCCI

The Lagos Chamber of Commerce (LCCI) has commended the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) decisions of Friday, January 24, 2020, which expressed concerns on Nigeria’s rising debt profile and the associated sustainability concerns and warned that the tightening of the Cash Reserve Ratio (CRR) would spike inflation.

The MPC were worried about the use of Debt-to-GDP ratio as a measure of debt sustainability; the vulnerability of the country’s economy to external shocks and the imperatives of building buffers and the risk of excess liquidity from maturing OMO bills.

Other areas of concern were on the need to rationalise fiscal expenditure and reduce cost of governance as well as the need for government to address structural and security issues in order to strengthen domestic productivity.

However, the LCCI also warned that the monetary tightening position that resulted in the upward review of the Cash Reserve Requirement (CRR) from 22.5 per cent to 27.5 per cent would have negative impacts on the country’s economy.

These impacts, according to the Director General of LCCI, Dr. Muda Yusuf, include the “reversal of the current downward trend in interest rate, which has begun to impact positively on the economy, especially the real sector.”

In addition, the chamber noted that the monetary tightening could have adverse effect on deposit mobilization, which could impact negatively on the financial intermediation role of deposit money banks.

“A high interest trajectory (which the tightening policy portends) will impact negatively on investment growth especially in the real economy. The prospects for increased job creation may be further dimmed. “The recent rebound in the stock market would suffer a reversal as interest rate increases and money market instruments become more attractive to investors.

“We believe that what the economy needs at this time are policy actions aimed at stimulating investment to boost output, create jobs and ultimately moderate inflation. Monetary policy tightening will negate the realization of these objectives,” Yusuf said.