The Organized Private Sector (OPS) has expressed displeasure over the decision of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to harmonize the Cash Reserve Ratio (CRR) requirement without reviewing the Monetary Policy Rate (MPR) downward.
They argued that CBN’s decision to harmonize CRR to 31 per cent for both private and public sectors funds, would further keep funds out of the reach of manufacturers, especially the Micro, Small and Medium Enterprises (MSMEs).
It would be recalled that the CBN after its MPC meeting last week, harmonized the CRR on private sector fund and private sector fund to 31 per cent from 75 per cent and 20 per cent respectively, but retained the MPR at 13 per cent.
The President, Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, noted that the MPC’s resolution that harmonized the CRR and left MPR to remain unchanged was inconsistent and not in the interest the OPS.
According to him, it would have been wise for the MPC to also review the MPR downward to make funds more accessible to the manufacturing sector which has remained cash starved.
He disclosed that the association has already made a recommendation to the CBN to review the MPR to 2-3 per cent in order to enable banks lend to Micro, Small and Medium Enterprises (MSMEs) at single digit interest rate.
“The only way you can grow industries is when the interest rate is at 5-7 per cent. In most other countries, industrial loans are much lower than that.”
He stressed that no manufacturer can borrow funds at 30 per cent from the Deposit Money Banks (DMBs) and be able to compete with their foreign counterparts.
The Director-General, Lagos Chamber of Industry and Commerce (LCCI), Dr. Muda Yusuf, who told Hallmark that the present tightening mode of the CBN was having adverse effect on the country’s economy, explained that it was denying them access to credit and compounding financial intermediation.
“The harmonization of the CRR will lead to further tightening, because the public sector deposit is not useful to the banks as the private sector deposit,” he asserted.
Dr. Yusuf opined that the impact of the CRR on public sector fund would be so profound, because of the volatile nature of the deposit, which cannot be planned with over a long time since the government can call for the funds at any time.
He elucidated, “The private sector fund is more stable and available for banks to carry out investments.
So, if you increase the private sector deposit by 11 per cent, the effect will be very significant, because if you add the liquidity ratio of 30 per cent and you already have MPC retained at 13 per cent.
The net effect on the economy will be very negative, in terms of the credit condition that it will create for the economy.”
The LCCI DG pointed out that this condition could not favour the Nigerian economy, which has meant to promote the real sector and create jobs.
The Director-General, Nigerian Association of Chambers of Industries Mines and Agriculture (NACCIMA), Barrister Emmanuel Cobham in a telephone interview with Hallmark said harmonization of the CRR to 31 per cent would bring manufacturing to its knees.
“Interest rate should not be high. It should be at a single digit. As OPS, if the interest is brought down to single digit, the better for us,” he noted.
He reiterated that NACCIMA has long been advocating for the downward review of the country’s interest rate.