… Says ‘decision will be counter-productive’
Presidential Candidate of the Labour Party in the 2023 general elections and former governor of Anambra State, Mr Peter Obi, has faulted the decision of the Central Bank of Nigeria in jerking up interest rate to 22.5%.
Obi, who acknowledge the fact that he is not an economic expert, stated that based on his vast trading experience, knowledge and involvement in the real sector, he was of the view that the CBN got the decision wrong.
Obi made his position known in a lengthy post on his verified X handle @PeterObi on Thursday. He concluded that “Tinkering with classical economics theory can only deepen our crisis”.
The full post read:
“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, ie 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. -PO”, he wrote.
