Former Anambra State governor, Mr. Peter Obi, has faulted the raise in interest rate by the Federal Government through the Central Bank of Nigeria, CBN, saying it would worsen the economic situation of most Nigerian households.
He added that it was 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.
He said that for the government to check food inflation, it must urgently address insecurity in the country, which would allow for increased food, and crude oil production, and an overall increase in production, which would make products, especially food, cheaper.
Obi in his X on Wednesday, said: “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 percent and the Cash Reserve Ratio, CRR, to 45percent 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.
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“Moreover, only about 12 percent of N3.6 trillion of the total money in circulation is in the banking system which means that 88 percent 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 percent, 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,” he added.
