….says move could boost investment, ease debt burden

By Gabriel Ewepu

ABUJA – THE Centre for the Promotion of Private Enterprise, CPPE, has welcomed the Monetary Policy Committee’s decision to cut the Monetary Policy Rate (MPR) by 350 basis points from 26.5 per cent to 23 per cent, describing the move as a significant recalibration of Nigeria’s monetary policy framework.

In a statement signed by its Chief Executive Officer, Dr Muda Yusuf, the CPPE said the scale of the adjustment, announced after the MPC meeting on Tuesday, was largely unexpected and marked a shift away from the prolonged restrictive monetary policy regime.

According to the organisation, the decision signals a rebalancing of monetary policy towards supporting economic growth, investment and recovery while maintaining price and financial-system stability.

The CPPE also welcomed the adjustment of the asymmetric corridor around the MPR from +50/-450 basis points to +50/-300 basis points, saying it further reinforces the recalibration of the monetary policy framework.

The private-sector advocacy group described the rate cut as timely, citing the improving inflation trajectory and the rising cost of maintaining a highly restrictive monetary environment.

It noted that the previous MPR of 26.5 per cent had become increasingly misaligned with inflation, which stood at about 15.4 per cent, and prevailing money-market rates of around 20 per cent.

“This weakened the signalling function of the policy rate and raised concerns about the effectiveness of monetary policy transmission”, the CPPE said.

It argued that reducing the MPR to 23 per cent should be viewed not simply as monetary easing, but as a realignment of the policy rate with prevailing macroeconomic and financial-market conditions.

The organisation noted that the Central Bank of Nigeria’s description of the decision as a “recalibration” or “reset” underscored the significance of the policy shift.

The CPPE said the decision could provide significant relief to businesses, particularly companies operating in manufacturing, agriculture, construction, logistics and other sectors where high financing costs have constrained investment and working capital.

It said commercial lending rates had remained too high for many productive investments, particularly in sectors characterised by long investment cycles and relatively tight profit margins.

According to the group, the lower policy rate could reduce the cost of capital, improve business cash flows, stimulate investment and strengthen Nigeria’s productive capacity.

However, it stressed that the benefits would depend largely on how effectively the new policy stance is transmitted through the banking system.

“The CPPE expects banks to reflect the new monetary policy environment in the pricing of credit”, the statement said, adding that lending rates on both new and existing facilities should progressively decline.

However, it warned that without meaningful transmission to borrowers, the impact of the rate cut on investment and economic growth would remain limited.

The CPPE also highlighted the potential benefits of lower interest rates for government finances.

It said the prolonged high-interest-rate environment had contributed to the rising cost of servicing the Federal Government’s domestic debt, as government securities competed with high market yields.

A sustained moderation in interest rates, it argued, could lower the marginal cost of government borrowing and gradually reduce domestic debt-service costs.

The resulting fiscal space could potentially support spending on infrastructure, security, education, healthcare and other development priorities.

The organisation, however, said the size of any fiscal benefit would depend on the extent to which the MPR cut translates into lower yields across the government securities market.

While welcoming the policy shift, the CPPE acknowledged that a reduction of this magnitude carries potential risks for the foreign-exchange market.

It noted that the divergence between Nigeria’s monetary policy direction and recent rate increases by some major central banks could affect interest-rate differentials and the attractiveness of naira-denominated assets.

This, it said, could increase the risk of portfolio outflows and renewed pressure on the foreign-exchange market.

The CPPE, however, said Nigeria was entering the latest policy transition with stronger external buffers than in previous periods of monetary easing, citing improved foreign reserves, greater stability in the foreign-exchange market and stronger external-sector conditions.

It urged the CBN to remain vigilant and use monetary-policy instruments, including open-market operations, when necessary to manage excessive volatility and preserve exchange-rate stability.

The organisation also stressed that lower interest rates alone would not be sufficient to deliver sustainable economic recovery.

It said a substantial portion of Nigeria’s inflationary pressures remained structural and supply-driven, with energy costs, logistics bottlenecks, insecurity, food-production constraints, infrastructure deficits and regulatory costs continuing to raise production expenses.

The CPPE therefore called for the monetary-policy recalibration to be accompanied by stronger fiscal and structural reforms aimed at reducing production costs, improving productivity, strengthening food and energy security and expanding domestic productive capacity.

It said such measures would be necessary to ensure that monetary easing translates into higher investment and output rather than renewed inflationary pressures.

The CPPE described the September MPC decision as a significant shift in the monetary policy cycle, saying the 350-basis-point reduction could ease financing pressures on businesses, support investment and economic growth, and gradually moderate the government’s domestic debt-service burden.

It identified four key indicators for assessing the impact of the policy: the extent to which commercial lending rates decline, the response of private investment and productive-sector credit, inflation trends, and foreign-exchange market stability.

The organisation urged policymakers to prioritise effective monetary-policy transmission while carefully managing liquidity, portfolio-flow and exchange-rate risks.