NACCIMA Backs CBN’s Interest Rate Increase

The Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), has described the recent decision by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to increase the monetary policy rate (MPR) by 400 basis points to a record 22.75 per cent as a bold and decisive step to tackle the persistent inflationary pressures in the Nigerian economy.

National President of the chamber, Dele Kelvin Oye, in a statement, noted that while such measures are likely to result in higher borrowing costs, which could affect investment and economic growth in the short term, the CBN’s focus on curbing inflation and stabilising the Naira is commendable.

According to him, “By raising the MPR, the CBN signals its commitment to tightening monetary conditions to rein in inflation, which has been eroding the purchasing power of Nigerians and destabilising the economic environment.”

Oye further stated, “Inflation in Nigeria has been driven by a combination of factors, including currency depreciation, supply chain disruptions, and elevated food prices. The depreciation of the Naira has made imports more expensive, thereby contributing to the inflationary trend. By increasing the cost of borrowing, the CBN aims to reduce the money supply in the economy, which should help to dampen inflationary pressures over time.

“The adjustment of the asymmetric corridor around the MPR to +100 to -700 basis points provides the CBN with greater flexibility to manage liquidity in the banking system. This could help in better steering short-term interest rates in line with the policy rate, which is critical for the transmission of the policy stance to the real economy.

“The raise in the cash reserve ratio (CRR) from 32.5 percent to 45 per cent is a further measure to curb excess liquidity in the banking system, which could otherwise fuel inflation. By locking away a larger portion of deposits as reserves, the CBN is effectively reducing the amount of money that banks can lend out, thus slowing down the expansion of credit and money supply.”

He added, “While these measures are likely to result in higher borrowing costs, which could affect investment and economic growth in the short term, the CBN’s priority appears to be the stabilisation of prices and the establishment of a foundation for sustainable economic growth. High inflation is detrimental to investment and long-term economic prosperity, as it creates uncertainty and reduces the real returns on investment.”

Reiterating the need for sustained collaboration among stakeholders to facilitate a better understanding of policy actions, the NACCIMA boss stated, “It is important for stakeholders, including NACCIMA as the apex chamber of commerce in Nigeria, to engage the CBN in constructive dialogue to ensure that our perspectives and our members concerns are considered in future policy formulations.

“Although many in the business community like NACCIMA were not consulted prior to this decision, ongoing communication can facilitate a better understanding of policy actions and enhance the collective effort to achieve economic stability and growth.”

“In summary, while the tightening of monetary policy by the CBN is expected to pose some challenges, particularly in terms of higher cost of capital, it is a necessary response to the current economic realities. The focus on curbing inflation and stabilising the Naira is commendable, as it seeks to protect the economy’s long-term prospects and the welfare of all Nigerians,” the statement read.