Former Director General of the Lagos Chamber of Commerce and Industries and now Chief Executive Officer of Centre for the Promotion of Private Enterprise [CPPE], Dr. Muda Yusuf, Speaks With NPO Reports on the implications of new interests rate and the new Naira notes unveiled by President Muhammadu Buhari
- Interview By Opeyemi Kamil and Omolade Durojaiye
What is your reaction to the latest decision by the Central Bank of Nigeria to raise interest rate to 16.5% sir?
It is going to increase the cost of credit to businesses and already, many of these businesses are facing a whole lot of issues as we speak. They are grappling with problem of forex; they are grappling with problem of cost of diesel, transportation, cost at the port and so many other issues. So, I don’t think that increasing interest rate at this time would be something that is beneficial, particularly because is not likely to make any impact on inflation.
So, from a purely business point of view, from the point of views of entrepreneurs, that decision is not a good decision. It would only hurt does who are doing business particularly those who have to borrow money from the bank or those who are indebted to the bank currently servicing their loans because all of these loans would now be revised which means that their operating cost would now go up. So, it is not a particularly good thing.
What are your predictions on the economy as a result of this latest development?
The impact is what I just told you. It’s going to increase the cost of credit to businesses, and business are already suffering a whole lot of problems so this is an additional boarding on them and you know they say that they are fighting this to tackle inflation.
But if you look at inflation, the key factors driving inflation are not exactly monetary. The key factors are; factors of exchange rate. Depreciation, for instance, is a major factor. Cost of energy is a major factor. Insecurity is an issue. Cost of transportation is an issue, climate change is an issue.
Then we have problems of productivity generally in the economy and this is affecting output. So, these are the key issues fueling inflation. So, if you want to tackle inflation, increase interest rate would not necessarily have any impact on inflation. We should be looking at some of these factors that I have highlighted and look at how we can deal with them in other to be able to address the cost, because the inflation we are generally experiencing are cost-driven inflation. These are the things we should be looking at. Increasing interest rate, I mean… the CBN has increased interest rate for over some times now, it has not brought down inflation! If anything, the inflation has been going up. So, that is why I think that this decision is not an appropriate decision.
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Even with the already bad situation of the economy, do you think the current administration and economic manager and are sensitive to the plight of the masses?
From the business point of view what is your reaction to the newly designed bank notes?
Well, from a business point of view, I don’t think the decision to redesign the note will solve any problem. If anything, it is going to cost the government a lot of money because they have to print new note. Secondly, cost of logistics of redistributing the notes is going to be very high. So, from an economy point of view, this decision has no economic value. It’s not going to improve the value of the currency. It’s not likely to reduce inflation. It has no impact on monetary policy. The CBN have been talking about it that some people are corrupt and they will seize this opportunity for the money they have stacked somewhere. They also talk about counterfeiting. Those are the two strongest point they are making.
But from a policy point of view, from an economic point of view, there is no value as far as I am concerned.