LCCI tackles CBN on tightening monetary policies

The Lagos Chamber of Commerce and Industry (LCCI) has called on Central Bank of Nigeria to soft paddle its tightening monetary policies as macro-economy challenges need to stimulated

Monetary Policy Committee (MPC) of the CBN last week announced that all indices remain unchanged as the committee voted to keep the cash reserve requirement for banks at 31 per cent for both private and public sector funds while also keeping the monetary policy ratio at 13per cent.

The CBN also reiterated that the exchange rate remains unchanged

The LCCI however expressed that CBN foreign exchange market retained reflects an ominous indifference of the CBN to the plight of various stakeholders.

Others concerned areas include CBN reviewing of its list of items not valid for foreign exchange that were completely ignored by the MPC and apparent trivialization by the CBN of developments in the parallel market segment of the foreign exchange market.

In a statement signed by LCCI President, Mr. Remi Bello,  the non-profit making organization explained that importation of petroleum products exerts the highest pressure on the foreign exchange market and the country’s reserves. 

According to the statement, “The LCCI expects this matter to be highlighted in the MPC communique.  The same is true of the implications of fuel subsidy on the fiscal stability of the governments at all levels. 

“These are major fiscal issues posing challenges for monetary policy and the management of the foreign exchange market.  We call on the President Buhari to do something urgently about these critical issues.

“The LCCI posits that the protracted problem of excess liquidity should be addressed in a manner that would not persistently cause disruptions and dislocations in the economy.  The therapy of interminable monetary tightening has really not worked.  The focus has been on tackling the symptoms, not the cause. 

“We submit that the phenomenon of excess liquidity is driven principally by the monetization of crude oil receipts and the high and increasing banking system credit to the federal government. 

“Fixing the problem through a root cause analysis will be more helpful to the economy.  It is critical to curb the incidence of high powered money in the financial system.  We note for instance that while the benchmark for Net Credit to the economy was 29.3per cent for 2015, credit to federal government grew by 40per cent as at June 2015.  These are issues to worry about.

“The money supply impact of monetization of oil revenue receipts, banking system credit to government and the various intervention funds of the CBN need to be critically examined

“The crisis of excess liquidity has done incalculable damage to the economy for many years.  There is a strong nexus between the crisis of liquidity, rising inflation; exchange rate depreciation, weakening purchasing power and worsening poverty of citizens over the years.  It is in fact the principal reason for the paradox of poverty in the midst of plenty,” the statement expressed.

The Commission meanwhile did not agree on the factors driving inflation at this time are transient as suggested by the MPC.  LCCI noted that the continued depreciation of the currency and the structural issues are major factors putting pressures on prices and these are not transient. 

  

They urged that major macro-economy measures by CBN needed to be tackled urgently.