The Lagos Chamber of Commerce and Industry (LCCI) have condemned in strong terms the decision of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to retain the current regime of tight monetary policy. Muda Yusuf, Director General of LCCI said the natural consequence of the decision to retain a high interest rate is the perpetuation of unfavorable economic conditions which include depressed economic activities which had manifested in low sales, weak consumer demand, huge inventories by manufacturers.
The Chamber also identified liquidity squeeze and tight cash flow conditions in the economy as well as high cost of funds which will impede competitiveness of firms as part of the negative consequences of the policy.
High risk of loan defaults, poor access to credit, weak financial inclusion, limited capacity of firms to retain or create new jobs, crowding out of domestic investors by foreign investors and Influx of hot money into the economy are other side effects of the policy according to LCCI.
“What is paramount at this time is the stimulation of the economy and that is the norm globally. Affordable and long time finance may not be a sufficient condition for economic growth, but it is a necessary condition”, Yusuf noted.
The Chamber argued that the ultimate objective of the CBN is to strengthen the economy and improve the welfare of citizens. “The fixation of the CBN for curbing inflation and building reserves is, in our view is disproportionate”, it said.
The LCCI however warned that the economy faces the risk of stagnation if financial resources are largely available only to the political class, the bureaucrats (and their cronies) and public sector institutions at the expense of investors. “This is a condition created by deficiencies in the structure and management of the economy. It is a scenario that poses a profound threat to wealth creation and the progress of the economy”, the Chamber lamented.
Meanwhile the Chamber has called out to the Apex Bank to soften the monetary policy stance reduce the yield on government securities to single digit, give more room for banks to create credit, increase the credit risk tolerance of the banking system and fix the structural and institutional bottlenecks in the economy.