High monetary policy rate"ll hurt investment decisions - NECA | TheNewsGuru

Source: TheNewsGuru
Author: Bayo Millz

The Nigeria Employers' Consultative Association (NECA) has said the apex bank's successive increase in the Monetary Policy Rate (MPR) will continue to hurt investment decisions in the private sector.

NECA's Director-General, Mr Adewale-Smatt Oyerinde, expressed the view in a statement on Tuesday.

The Monetary Policy Committee of the Central Bank of Nigeria (CBN), at the end its 295th meeting that ended on Tuesday in Abuja, raised the MPR by 150 basis points to 26.25 per cent from 24.75 per cent.

The committee also retained the asymmetric corridor around the MPR to +100/-300 basis points, retained the cash reserve ratio of Deposit Money Banks at 45 per cent.

Oyerinde said that the cost of borrowing for investment by organised businesses had increased since March 2024 when the policy rate was raised to 24.75 per cent.

According to him, the new policy rate of 26.25 per cent will further affect private investment negatively.

"It is implausible to control the current high inflation by continuously raising interest rate.

"Implementing tight monetary policy stance when firms' investment expenditure and household consumption is at the lowest ebb may further incapacitate production and capacity utilisation in the already challenged private sector, " he said.

The NECA boss said that the persistent high depreciation in the value of Naira would continue to feed inflation, while constraining firms investment and household consumption.

He said, consequently, raising policy rate would further exacerbate inflationary pressure as growth in factor costs and commodity prices become unbounded.

Oyerinde attributed the defying inflationary pressure to the liberalisation of FX in the country, notwithstanding that the economy was heavily import dependent.

He said that before the total floating FX regime was implemented, the economy was better-off with inflation anchoring below 20 per cent mark.

"Consequently, I urge the government to reconsider the guided FX floating regime, which is a dynamic and flexible FX management regime and has proven to be better than the current regime, " Oyerinde said.