The Lagos Chamber of Commerce and Industry (LCCI) has criticised increased monetary tightening of the Central Bank of Nigeria (CBN), particularly recent hike in Cash Reserve Ratio (CRR) for public sector deposits from 50 percent to 75 percent.
According to the chamber, sustained monetary policy tightening in the face of weak private sector productivity, high unemployment and worsening poverty situation was not an appropriate policy option as such would have profound effects on interest rates, financial system stability, the real economy and financial intermediation.
In a statement signed by Remi Bello, president of LCCI, the chamber said the monetary policy regime was inadvertently reinforcing the import dependence of the economy while penalising domestic production, reiterating that it was becoming increasingly difficult to produce domestically due to a combination of structural and monetary factors.
“The incentive to import is increasing while the motivation for domestic production is diminishing. It is impossible to build an inclusive and job creating economy with this scenario”, Bello said in the statement.
The chamber outlined some immediate implications of the new monetary policy stance as high cost of fund for businesses as banks adjust their rates to accommodate the new monetary conditions; hold on draw down for existing loan facilities as the banks struggle to meet statutory ratio requireblast in which over 1,000 souls, mostly women and children, perished the state government has built a bridge across the Oke Afa canal which claimed the lives of those people who were trying to escape from the blasts.
The bridge though completed late 2013, was officially handed over yesterday, making it now possible for both motorists and pedestrians to connect communities in Ejigbo area of the state with Ajao Estate and Murtaments; as well as shock to the banking system which may trigger financial system instability.
LCCI added that the financial intermediation role of banks would be impeded as the economy was being deprived of the surplus resources from the public sector.
“Financial intermediation is a major function of banks in any economy which makes it possible for resources to be channeled from the surplus segment of the economy to the deficit sectors at any point in time”, he said.
The chamber suggested recognising limitation of monetary policy in fixing structural economic problems as well as definition of monetary policy threshold tightening to avoid unintended adverse consequences for the economy.
It added that in stabilising exchange rate, demand and supply side issues should be addressed, while the Federal Government must address current concerns over fiscal leakages, depletion of reserves and the running down of the Excess Crude Account.
Other measures suggested by the chamber included paying greater attention to fixing structural problems of the economy by fiscal and monetary authorities, especially the high infrastructural deficit; commitment to improving infrastructure investment to boost productivity in the economy and enhance inclusiveness, as well as closing the widening gap between the official and parallel market exchange rates to stop round tripping and speculative activities in the foreign exchange market.
ODINAKA ANUDU
