The Labour Party presidential candidate in the last general election, Mr Peter Obi, has criticized the recent decision of the Monetary Policy Committee to increase the Monetary Policy Rate, MPR, to 22.5% and the Cash Reserve Ratio, CRR, to 45%, saying it will further worsen the economic situation of most Nigerian households.
Obi said the measure would be counterproductive as it would not address the intended purpose of managing money supply.
According to him, the development was bound to cause more job losses in the productive sector, especially manufacturing and other sectors that rely on bank loans and credit facilities for their funding needs.
DAILY POST reported that the MPC Policy committee of the Central Bank of Nigeria had increased the benchmark interest rate by 400 basis points to a record 22.75%.
The CBN Governor, Olayemi Cardoso, announced this while reading the communiqué of the first MPC meeting of the year on Tuesday in Abuja.
However, in a statement issued on Thursday on his X handle, Obi argued that tightening liquidity in the financial system does not improve productivity, especially food production, which he claimed was the major cause of inflation in Nigeria.
Suggesting on what to be done, the former Anambra State governor said the most critical way to manage the high rate of inflation and decline in production was for the government to address the issue of insecurity in the country.
He stressed that this would allow for increased food, and crude oil production, and an overall increase in production, which will make products, especially food, cheaper.
The statement read: “Let me confess that the label of being a vintage Onitsha-based trader does not in any way confer on me the status of an economic expert.
“With my vast trading knowledge and my involvement in the real sector, I am of the strong opinion that the recent decision of the Monetary Policy Committee to increase the Monetary Policy Rate, MPR, to 22.5% and the Cash Reserve Ratio, CRR, to 45% will further worsen the economic situation of most Nigerian households as it is bound to cause more job losses in the productive sector, especially manufacturing and other sectors that rely on bank loans and credit facilities for their funding needs.
“Tightening liquidity in the financial system does not improve productivity, ie food production, which is the major cause of inflation in Nigeria. Moreover, only about 12% of N3.6 trillion of the total money in circulation is in the banking system which means that 88%, about N3.2 trillion is outside the banking system.
“So, this measure would rather be counterproductive as it would not address the intended purpose of managing the money supply.
“These new measures will worsen the fragile economy as the supply of funds would dry up for the real sector, and the new MPR rate hike will push the interest rate on loans to above 30%, which would be very difficult for the real sector operators especially manufacturers and SMEs to repay; resulting, obviously, in increased bad loans, and worsening the nation’s economic situation.
“The most critical way to manage our high rate of inflation and decline in production is for the government to address the issue of insecurity in the country, which will allow for increased food, and crude oil production, and an overall increase in production, which will make products, especially food, cheaper.
“This way, we would increase our productivity as well as restore the confidence of FDIs and FPIs to come back to the country.
“I must caution that what the Nigerian economy needs now is hard headed practical originality and results. Tinkering with classical economic theories can only deepen our crisis”.