Central Bank’s MPR, CRR Policy Will Worsen Nigeria’s Fragile Economy, Cause More Job Losses – Peter Obi

The candidate of the Labour Party (LP) in the 2023 presidential election, Peter Obi, has said that increasing the Monetary Policy Rate (MPR) to 22.5% and the Cash Reserve Ratio (CRR) to 45% is counterproductive.

According to him, the move by President Bola Tinubu’s government will further worsen the country’s fragile economic situation. He said it is bound to cause more job losses in the productive sector.

Obi, who said this on Thursday in a series of posts on his X handle said that he is not an economic expert but he knows that tightening liquidity in Nigeria’s financial system does not improve productivity, that is, food production, which according to him, is the major cause of inflation in the country.

The Monetary Policy Committee of the Central Bank of Nigeria (CBN) on Tuesday announced an increment of the benchmark interest rate by 400 basis points to a record 22.75%, a move which will see the apex bank mop up liquidity to the tune of N6.96 trillion from all banks in Nigeria.

Reacting to the decision of the CBN, Obi said that 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.

According to him, the new measures will worsen the fragile economy as the supply of funds would dry up for the real sector, stressing that the new MPR rate hike will push the interest rate on loans to above 30%, which he said would be very difficult for the real sector operators especially manufacturers and SMEs to repay; resulting in increased bad loans and worsening the nation’s economic situation.

Obi said, “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, i.e. 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.”