Sharp increase in interest rates, CRR will worsen economy, says Peter Obi

Peter Obi, the presidential candidate for the Labour Party in the last general election, has warned that the sharp increase in the Monetary Policy Rate (MPR) and Cash Reserve Ratio (CRR) to 22.75% and 45% respectively will adversely affect the economy.

This was contained in a statement released on Thursday by the former governor of Anambra State, where he noted that the sharp increase in MPR and CRR will result to job losses in the productive and manufacturing sector.

Obi mentioned that the increase in rate is counterproductive, adding that the policy will not address money supply challenges in the country.

“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.”

In his advice to the apex bank, Obi said the CBN should have adopted a different approach to address the soaring inflation rate in the country.

Obi emphasized that the inflation challenges in the country is caused by insecurity targeted at food production and crude oil production in general.

Accordingly, he suggested that the federal government provide an “overall” security in the country, adding that this measure will increase production as well as foreign portfolio investment (FPI) in the country.

“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 hardheaded practical originality and results.

“Tinkering with classical economic theories can only deepen our crisis,” Obi added.

By Babajide Okeowo

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