CBN governor explains why bank won’t cut prevailing interest rates
MONETARY Policy Committee (MPC) of Central Bank of Nigeria (CBN) begins its meeting in Abuja this today, its Governor, Godwin Emefiele has hinted that there will not be a cut to prevailing interest rates.
This is as he advised government to invest heavily in infrastructure as a way out of current economic difficulties.
Emefiele said with inflation rate still hovering above 16 per cent, CBN would be failing in one of its key mandates if it cuts interest rates at this time.
Emefiele in a lecture “The Dilemma of Monetary Policy and Exchange Rate Management in a Recession: Potential Options for Nigeria”, which he delivered at the Second Homecoming series of the Economics Department of the University of Nigeria, Nsukka (UNN) disagreed with arguments pushing for a rate cut as a path to growth.
“Interest rates reflect not just the cost of capital but also the cost of doing business, and so we need to also look at interest rates from the perspective of the lender.
“Given that most banks have to individually provide security, power, and other infrastructure, it is not surprising that some of these costs are passed on to customers in the form of high interest rates,” he explained.
He however, gave assurance that CBN would continue to rely on moral suasion to encourage Deposit Money Banks in the country to be more considerate in interest charges on customers.
Emefiele traced the current economic challenges to external factors such as slide in the prices of crude oil as well as internal factors such as under-investment in domestic productive capacity, decayed infrastructure and the challenge of persuading deposit money banks to channel credit to the real sector.
The UNN alumnus explained that the challenges prompted CBN to fashion out an appropriate exchange rate strategy to achieve price and financial system stability and restart growth.
To address observed challenges, he noted that the CBN introduced policies at both the management and the Monetary Policy Committee (MPC) levels targeted at stabilizing the economy.
He made particular reference to efforts made by the Bank in checking the further depletion of Nigeria’s external reserves in the face of dwindling accretions and increased demand for foreign exchange.
Mr. Emefiele disclosed that the CBN had to make the foreign exchange market flexible as well as prioritize the most critical needs for foreign exchange.
Despite being “unjustly castigated for taking actions in the best interest of the economy”, the Governor said CBN would not be deterred from its objective of setting the economy on the path of sustainable development in the medium to long-term.
He cautioning Nigerians against relying on other countries for products that could be produced locally.
As a way out of the current situation, he emphasized the need for the country to invest in basic infrastructure such as roads, bridges, airports, railways and information technology, adding that the country also needed to explore opportunities for Public Private Partnerships for opportunities in infrastructure projects that could offer lucrative returns to investors and help drive economic growth across Nigeria.
Mr. Emefiele also stressed the need for fiscal policy to target improved productivity of labour and increase disposal incomes for workers. He suggested that fiscal policy could consider ways of stimulating household consumption and business investments.
Citing agriculture as the largest employer of labour in Nigeria, he said the CBN, working with relevant Ministries and agencies, had contributed greatly to the revamp of the sector through its Anchor Borrowers’ Programme (ABP) and other agricultural interventions.
So far he disclosed, the apex bank has committed about N29 billion to the ABP with active participation of 24 states.
Other policy options he listed include: exportation for more revenue, pursuit of non-oil exports, and enactment of import-reducing policies that will encourage Nigerians to look inwards and discourage the importation of items that can be produced in Nigeria.
He challenged tertiary institutions to focus on research that will boost economic development, just as he assured that the CBN will work with relevant stakeholders in the educational sector to stimulate research for the overall good of Nigeria.
Emefiele expressed concern that the educational sector in the country had lost its glory, noting that any country desirous of making tremendous growth should focus on its health and educational sectors.
While recalling with nostalgia the glorious past of education in Nigeria, particularly at the UNN, when students on campus were fed with poultry products and bread produced in the school, he stressed the need to for all stakeholders in the educational sector to contribute their quota to restoring Nigeria to its pride of place in education.
According to him, the CBN, as part of its contribution, had contributed to education through the provision of Centres of Excellence in some universities across Nigeria to encourage world class research and stimulate growth.