The Lagos Chamber of Commerce and Industry, Manufacturers Association of Nigeria, and other business groups have welcomed the Central Bank of Nigeria's decision to cut the Monetary Policy Rate by 350 basis points, from 26.5% to 23%. They believe this move could lower borrowing costs, improve access to credit, and stimulate production and investment. However, they emphasize that the effectiveness of the decision depends on commercial banks transmitting the reduction to their lending rates.
CBN Governor Olayemi Cardoso announced the decision at the 307th meeting of the Monetary Policy Committee, held on Monday and Tuesday. The committee also adjusted the Standing Facilities Corridor and retained the Cash Reserve Requirement at 45% for deposit money banks, 16% for merchant banks, and 75% for non-Treasury Single Account public-sector deposits. This move aims to ease pressure on the real sector and respond to calls from businesses.
Segun Ajayi-Kadir, director-general of MAN, described the reduction as a positive development but stressed that the next critical step is ensuring it translates into lower lending rates. He noted that the decision shows the CBN's willingness to ease pressure on the real sector and respond to persistent calls from businesses. However, he expressed concern that despite previous MPC rate cuts, bank lending rates have remained high.
Ajayi-Kadir emphasized that the reduction is still insufficient to close the competitiveness gap between Nigerian manufacturers and their counterparts in countries like Egypt, Morocco, and South Africa, where borrowing costs are significantly lower. He called for further deep cuts, stating that even at 23% MPR, prime lending rates will still be 27-30%, making it difficult for manufacturers to be competitive.
MAN proposed complementary measures, including reducing the CRR from 45% to free more liquidity for manufacturing, and operationalizing the N1 trillion Manufacturing Development Fund. Ajayi-Kadir urged the CBN to use moral suasion and regulation to encourage banks to transmit the reduction to borrowers, stating that high credit costs will hinder the impact of the rate cut.
The business groups warned that high borrowing costs remain a major constraint to manufacturers and small businesses. They stressed that the CBN's decision must be accompanied by a reduction in lending rates to have a meaningful impact on the economy. The groups will be monitoring the implementation of the rate cut and its effects on the economy.
The rate cut is expected to stimulate economic growth, but its effectiveness will depend on the transmission of the reduction to lending rates. The CBN's decision has been welcomed by business groups, but they remain cautious, citing the need for further action to address the high cost of credit and stimulate economic growth.
Key points
- The CBN cut the Monetary Policy Rate by 350 basis points, from 26.5% to 23%.
- Business groups have welcomed the rate cut but stress the need for lower lending rates.
- The effectiveness of the rate cut depends on commercial banks transmitting the reduction to their lending rates.
