Peter Obi, the presidential candidate of the Labour Party in the most recent general election, has denounced the Monetary Policy Committee’s recent decision to raise the Cash Reserve Ratio (CRR) to 45% and the Monetary Policy Rate (MPR) to 22.5%.
Obi issued a warning, stating that the inability of the measure to control the money supply would worsen financial difficulties for a large number of Nigerian households and would lead to a rise in job losses in industries like manufacturing, which is highly reliant on bank loans and credit facilities.
The Monetary Policy Rate (MPR) was increased by 400 basis points to 22.75 percent from 18.75 percent by the Central Bank of Nigeria (CBN) recently.
This was declared by Governor of the Apex Bank Yemi Cardoso following the Monetary Policy Committee (MPC) meeting in Abuja on Tuesday, the first of the year.
However, in a message sent on Thursday through his X Twitter, Obi said that limiting the amount of liquidity in the banking system does not increase productivity—especially in the food sector, which he named as the main cause of Nigeria’s inflation.
The former governor of Anambra State offered a remedy, emphasising that in order to control the high rate of inflation and the decline in production, the government must give priority to resolving insecurity.
He underlined that resolving this issue will enable increased production of food and crude oil, leading to a rise in overall production and, ultimately, lower prices for goods, particularly food.
The statement read: “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% 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, i.e. 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.
“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”.
