As the Central Bank of Nigeria’s Monetary Policy Committee MPC kicks off its 2-day meeting today to decide on key lending and other rates, the Centre for the Promotion of Private Enterprise (CPPE) has charged the monetary authorities to carefully calibrate and balance its monetary policy stance in order to ensure the nation’s macroeconomic stability.
The frontline organized private sector (OPS) advocacy group in a Policy Brief issued on the MPC’s meeting signed by its Director/CEO, Dr. Muda Yusuf, stated that the committee’s decisions at its 308th meeting should avoid excessive tightening capable of undermining economic recovery and private sector resilience.
Taking a critical appraisal of the prevailing micro and macroeconomic trends currently in the economy, particularly the impacts on business enterprises, consumer purchasing power and ongoing reforms of the government on the economy, the Centre maintained that, though the apex bank’s hawkish monetary stance over the months had been achieving the desired results, the need for moderation of the stance had become imperative.
However, the Centre expressed its concern about the implications of any additional monetary tightening for economic growth, private sector investment, industrial productivity and employment generation.
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It further pointed out that the Nigerian economy remained fragile and structurally constrained, warning that further tightening of monetary conditions could significantly weaken credit expansion, dampen investment appetite and undermine the fragile recovery momentum within the real sector.
Similarly, it stated that excessively elevated interest rates had the potential of also heightening the risks of loan defaults, weaken the financial sustainability of businesses and exacerbate sovereign debt service pressures.
The CPPE argued that monetary policy management in developing economies required a more nuanced, pragmatic and context-sensitive approach than what typically obtains in advanced economies, noting that Nigeria’s structural realities, including infrastructure deficits, weak productive capacity, elevated unemployment, high energy costs and substantial financing gaps, necessitate a monetary policy framework that carefully balances price stability objectives with growth-supportive imperatives.
This is even as the OPS advocacy group stressed that remained equally important to recognise that the current inflationary pressures are predominantly cost-push and supply-side driven. The major inflation drivers remain energy costs, transportation expenses, logistics bottlenecks and structural inefficiencies within the production environment.
According to the CPPE, monetary tightening is generally more effective in addressing demand-pull inflation arising from heightened aggregate demand and liquidity expansion. Its effectiveness in addressing supply-side inflation shocks is considerably more limited.
It cautioned that further tightening under prevailing conditions therefore risks imposing disproportionate costs on the productive sector without necessarily delivering commensurate gains in inflation moderation as well as increase the cost of capital, weaken manufacturing competitiveness, suppress SME growth, constrain household consumption and slow investment expansion at a time when the economy urgently requires productivity-enhancing investments and job creation.
Specifically, on the desirable policy thrust options for the MPC the OPS canvassed: “The overarching policy priority should be to sustain investor confidence, support productive investments, stimulate output growth and strengthen the economy’s supply-side capacity while maintaining vigilance on inflation management.
“In the final analysis, while prevailing inflationary risks may justify a cautious policy posture by the MPC, the CPPE strongly urges the monetary authorities to avoid excessive reliance on monetary policy orthodoxy in managing what is fundamentally a structurally-driven inflation environment.
“Sustainable disinflation in Nigeria will depend far more on improvements in productivity, energy security, logistics efficiency, exchange rate stability, domestic petroleum refining capacity and overall supply-side reforms than on aggressive monetary tightening”, the Centre added.
