The Centre for the Promotion of Private Enterprise (CPPE) has expressed concern over the weak transmission of monetary policy adjustments to lending rates in the real economy.
In a policy brief issued after the Central Bank of Nigeria reduced the Monetary Policy Rate to 26.5 per cent, CPPE noted that structural bottlenecks continue to limit the impact of monetary easing on businesses.
The CBN’s Monetary Policy Committee had said the decision to lower the benchmark rate was driven by sustained improvements in macroeconomic indicators, particularly inflation.
While acknowledging the significance of the rate cut, CPPE cautioned that borrowing costs in the real sector remain elevated.
“A major concern remains the weak transmission mechanism between monetary policy adjustments and actual lending rates in the real economy,” the report said.
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According to the think tank, lending rates to businesses remain high due to structural factors including high Cash Reserve Ratio, elevated cost of deposits, and risk premiums reflecting macroeconomic uncertainty.
It noted that crowding-out effects from government borrowing and high operating costs within the banking system also contribute to persistent high lending rates.
Unless these structural rigidities are addressed, the benefits of monetary easing may not translate into lower borrowing costs for manufacturers and SMEs.
CPPE stressed that improving policy transmission should be a priority, requiring complementary measures to ease liquidity constraints and reduce distortions in government domestic borrowing patterns.
At Tuesday’s MPC briefing, the MPR was cut by 50 basis points to 26.5 per cent, marking the lowest rate since May 2024.
However, other key policy parameters were retained, including the Cash Reserve Ratio at 45 per cent for commercial banks and the Liquidity Ratio at 30 per cent.
The committee said maintaining these parameters reflects a cautious stance aimed at preserving financial stability despite easing inflationary pressures.
CPPE commended the CBN for the measured adjustment but identified strengthening monetary transmission and advancing credible fiscal consolidation as critical priorities.
With structural reforms and disciplined fiscal management, the current policy direction could stimulate stronger investment flows and more sustainable economic growth.
