CBN Urged to Prioritize Low Interest Rate over MPR
The Lagos Chamber of Commerce and Industry, LCCI, yesterday, 2nd of August, 2018 called on the Apex Bank to prioritize achieving low interest rate over maintaining high Monetary Policy Rate (MPR). While the former, according to the chamber would stimulate investment and enhance growth the latter is aimed at checkmating inflation.
At a press conference on the state of the economy, President of LCCI, Mr. Babatunde Ruwase, said low interest rate will also lead to the creation of more jobs, boost industrial output and ultimately have a moderating effect on inflation. The Chamber noted the decision of CBN’s Monetary Policy Committee (MPC) at its meeting of 23rd and 24th July 2018, which retained the Monetary Policy Rates (MPR) at 14 percent.
He opined that the MPC decision was underpinned by CBN’s concern about inflation and the risks to exchange rate, foreign reserves and capital flows. But Ruwase stated: “However, times like these calls for prioritization in favour of stimulation of investment and growth. This means giving priorities to job creation and poverty reduction, which are cardinal programs of the present administration.”
He also commended the creation of a single digit interest rate window through the issuance of Commercial Papers by the large corporates, especially for the real sector, noting that it is gratifying that this window also offers long term facility of up to seven year tenure. This is salutary, and we commend CBN for the bold move.
We also commend the decision to introduce a differentiated dynamic cash reserves requirement (CRR) regime to direct long-term bank credit at 9 per cent with a minimum tenure of seven years and two years moratorium to employment elastic sectors of the economy. The implication of this is that Banks that lend to sectors that readily create jobs will get a corresponding CRR concession.