High interest rates cripples Nigerian economy

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Nigeria’s Organised Private Sector (OPS) has implored monetary authorities to take acceptable measures in reflating the economy through monetary easing and reduction of the high interest rate, which it said are currently stifling economic growth in the country.

The Nigerian Employers Consultative Association (NECA), at the quarterly meeting of its Governing Council in Lagos, said it is accepted practice in economic management in most jurisdictions that the correct posture in a recession is a reflationary fiscal policy and monetary easing, including reducing interest rates.

The President of NECA, Mr. Larry Ettah, lamented that rather than following the ideal, the Central Bank of Nigeria (CBN) has maintained tight monetary policy and raised interest rates.

“We are of the view that this approach is sub-optimal and has failed. It is based on an erroneous assumption that tight monetary policy would constrain inflation and temper pressures on the naira.

“Instead, the actual experience confirms that Nigerian inflation is driven by cost elements, usually currency devaluation and food and energy prices, while naira values are shaped by oil prices and the forex reserves rather than monetary conditions, especially as CBN has maintained administrative control of the currency value.”

According to the NECA President, manufacturers and other employers of labour have thus had to cope with a triple whammy of recession, high inflation and high-interest rates caused by the wrong policy choices made by the monetary authorities.

He, therefore, urged the CBN to now move towards lowering interest rates and specifically to reduce the Monetary Policy Rate (MPR), which has been kept at 14 per cent since July 2016.

Speaking further on the negative implications of current interest rate policy, Ettah said it was the phenomenon of “crowding out” of private sector access to credit by the government.

Data from the CBN demonstrates that credit expansion to government is outgrowing by large margins against credit to the private sector.

For example, between February and April 2017, while credit to government grew by 3.10 per cent, 27.81 per cent and 7.54 per cent respectively, private sector credit grew marginally in February by 0.10 per cent; declined by 1.89 per cent in March, and also declined by 1.48 per cent in April on a month-on-month basis.

On a year-on-year basis, credit to government expanded by 15.43 per cent, 19.76 per cent, 37.46 per cent and 42.15 per cent in January to April 2017, while private sector credit grew only 19.76 per cent, 19.17 per cent, 17.96 per cent and 13.23 per cent in the same period.

This, he also said, has informed the recent decision of listed companies to approach their shareholders to raise money through several methods. Most recent is the rights issue,which aims at reducing foreign loans by converting debts to equity and provision of capital to effectively run the affairs of private businesses through the avenues the capital market offers.

He, however, said a lower interest rate will ensure private businesses have access to funds, which will help them grow their businesses, grow the economy and take their rightful place as the engine growth of the nation.