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The Abuja Chamber of Commerce and Industry (ACCI) have expressed optimism that economic activities will consolidate on the recent gains in response to MPC decision,arising from the Monetary Policy Committee (MPC)recent meeting which held all key monetary policy rates static for the fourth time in a row.
Recall that as a result of prevailing production and price risks in the Nigerian economy, the committee kept the Monetary Policy Rate (MPR) at 14%; Cash Reserve Ratio at 22.5%; Liquidity Ratio at 30%; and maintained the Asymmetric corridor at +200 and -500 basis points around the MPR.
“Output and prices have already adjusted to the subsisting equilibrium interest rate; therefore, the decision will not distort the ongoing economic recovery plan. Nevertheless, fiscal policy complementarity is required to facilitate economic growth agenda”The Chamber said in a statement on Sunday.
Nevertheless,the Chamber stated that holding benchmark interest rate will continue to support foreign capital inflow;increase in portfolio investment is having positive effect on Nigeria capital market where the All Share Index as well as the Market Capitalisation have gained about 12% within a month.
In this view, interest rate cut will rescind foreign portfolio investment and erode the recent gains at the capital market.
The Chamber stated further that the associated exchange rate risk will be devastating and injurious to the exchange rate strategy of the Central Bank of Nigeria (CBN).
It also stated that it noticed that the ability of banks to create money or extend credits to businesses is stifled having exceeded the 80% loan-to-deposit regulatory threshold.
Even at the high prevailing interest rate, access to finance to the real sector will remained subdued owing to attractive risk-free lending to government to fund its budget deficit.
In our view, inflationary pressure poses greater threat to businesses and we believe that current high inflation rate though decelerating, is structurally induced. In this view, fiscal instruments to improve doing business conditions, and improve critical infrastructure (road, rail and power) will improve business turnover and stimulate investment in the near to medium term.
ACCI,therefore recommends a downward review of the cash reserve ratio and the liquidity ratio to enable deposit money banks create money and increase credit facility to the real sector
While this is sine qua non at this time, the apex bank must first raise its regulatory or oversight efficiency to forestall systemic risk that could be necessitated by high non-performing loan and poor capital adequacy ratio,the statement cautioned.
HARRISON EDEH, ABUJA
