Lagos Chamber of Commerce and Industry (LCCI) has cautioned against a further hike in the Monetary Policy Rate (MPR), noting that incessant increases, as witnessed in the past few months, have left businesses and investments worse off.
The Chamber also predicted the possibility of the Naira hitting the N1,000 mark before the end of the year.
The Monetary Policy Committee (MPC), in the second quarter of 2024, met for the third time, and in May, increased the Monetary Policy Rate to a record 26.25% from 24.75%, with every other parameters remaining unchanged.
The Chamber, through its President, Mr Gabriel Idahosa, stated that the warnings on rate hike had become imperative since the apex bank might be tempted to further raise rates since inflationary pressures and money in circulation remain high.
It, therefore, recommended that instead of a further hike, MPC should consider an ‘easing disposition’ to interest rates since businesses are already facing multiple burdens.
The Chamber argued that the private sector, which serves as the engine of growth and employment generation in Nigeria, is already plagued with increased borrowing costs, reduced investment incentives, heightened uncertainties in the policy environment, and a pressured foreign exchange market.
“The recent hikes in the MPR have directly translated into higher interest rates, making it more expensive for businesses to access credit for working capital, expansion, and sustainability”, the business advocacy group stated.
The Chamber noted that with high treasury bills and bond yields, the government continues to make investments from local and foreign portfolio investors while crowding out the private sector from accessing credit.
It therefore decried the situation where funds have continued to dry up from the the private sector to government treasuries.
On the foreign exchange market, the Chamber noted that the dynamics in the market have continued to depreciate the value of the Naira, driven by weak supply, uncertainties, and increasing demand.
In consequence, the Chamber called on the CBN to rejig its reform strategies towards boosting supply and liquidity in the market, especially with the Naira exchange rate above the N1500 level against the Dollars.
The Chamber however expressed optimism about the possibility of the Naira gaining some value, before the end of this year.
Such optimism, it stated, is hinged on the billions of dollars, expected from the sales of marginal oil fields, achieving a higher oil production level, and the possibility of an increase in oil price, which could play a role in driving supply to record levels and helping the Naira to appreciate towards the N1000 mark.
“We urge the monetary authorities to reconsider a review of the free-floating exchange rate.
“The depreciation was fundamentally driven by low supply to the market, but speculative activities played a huge role in distorting the real value of the Naira.
“Before the end of the first quarter, the Naira firmed up due to some FX policy reforms undertaken by the CBN. The CBN needs to sustain its interventions and improve supply in the FX market, adopt policies that would attract more FX inflow into the economy, and build market confidence in the performance of the Naira even in the long run,” LCCI stated.
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