Don't Miss


Home   >   Market - Finance   >   Finance   >   CRR increase will hurt domestic production – LCCI

CRR increase will hurt domestic production – LCCI

By on January 28, 2014

The Lagos Chamber of Commerce and Industry has said the decision of the Central Bank of Nigeria to increase the Cash Reserve Requirement on public sector funds in banks to 75 per cent will encourage the importation of products to the detriment of domestic production.

The CBN had reviewed the CRR from 50 per cent to 75 per cent last week as part of its monetary tightening strategy, but the LCCI explained in a statement on Sunday by its President, Alhaji Remi Bello, that sustained monetary policy tightening in the face of weak private sector productivity, high unemployment and worsening poverty situation was not an appropriate policy option.

“The recent review of the Cash Reserve Requirement on public sector deposits from 50 per cent to 75 per cent by the Central Bank of Nigeria will have profound effects on interest rates, financial system stability, the real economy and financial intermediation,” it said.

Specifically, the LCCI, which said it was becoming increasingly difficult to produce domestically due to a combination of structural and monetary factors, explained that the CRR increase might force banks to put on hold draw downs on existing loan facilities as they strived to meet statutory requirements.

In less than a year, the CBN had increased the CRR twice. First, the bank increased it from 12 per cent to 50 per cent in July 2013 before raising it to 75 per cent last week.

According to the LCCI, the development is capable of shocking the banking system, which may trigger financial system instability and prevent banks from playing their intermediation role as the economy is being deprived of the surplus resources from the public sector.

To avoid such a situation, the LCCI called on the CBN to “maintain a balance between its pursuit of low inflation and exchange rate stability on the one hand, and the need to stimulate the economy on the other.”

It stressed that such a balance was crucial considering the worsening unemployment and poverty situation in the country.

The body also said, among other things, that there was the need for the limitation of monetary policy in fixing economic problems that were structural in origin to be recognised.

“The threshold of monetary policy tightening should, therefore, be defined to avoid unintended adverse consequences for the economy,” it said.

 

 

[Punch]