The Central Bank of Nigeria (CBN) recently increased the Monetary Policy Rate (MPR) from 12% to 14%, leading to fears that lending rates by money deposit banks will also rise correspondingly. The MPR is a major determinant of interest rates at which the deposit banks lend money to borrowers. While the MPR was at 12% the MDBs were granting loans at between 20% - 25%. With the new development it is feared that they will lend money at higher levels of between 28% - 30%.
The CBN justified its action on the grounds of fighting inflation which it sees as its cardinal goal in the challenge of maintaining the health of the Nigerian economy. According to the apex bank it was faced with the task of securing a balance between reducing interest rates with the goal of stimulating growth at the risk of further inflation, and tightening liquidity as well as checking inflation by increasing lending rates. It, however, chose the second option of increasing lending rates by increasing the MPR and hopefully curbs inflation.
The CBN justified its action on the grounds of fighting inflation which it sees as its cardinal goal in the challenge of maintaining the health of the Nigerian economy. According to the apex bank it was faced with the task of securing a balance between reducing interest rates with the goal of stimulating growth at the risk of further inflation, and tightening liquidity as well as checking inflation by increasing lending rates. It, however, chose the second option of increasing lending rates by increasing the MPR and hopefully curbs inflation.
A regular problem of developing economies like Nigeria’s is the issue of excess liquidity, which features a situation where too much money chases too few goods and services due to their often depressed productive capacities. The excess liquidity serves as a major culprit in fuelling rise in inflation. It therefore remains a core concern of monetary policy of the CBN to keep a close watch on the level of liquidity in the economy.
However, the initiative has attracted sharp reactions from some quarters, including the governor of Kaduna State Mallam Nasiru El Rufai who criticised it as being unhelpful to regular business interests in the country. Speaking to an all-women business forum - Women in Business - the governor berated the CBN on the grounds that the increase placed loans in banks out of the reach of most normal businesses in the country except for “drug pushers and traders”. He blamed the high interest rates for job losses, arguing that the inability of businesses to borrow money at affordable rates diminished their operational capacities. On that ground he mooted the idea of a legislation that will fix interest rates outside the brief of the CBN.
Populist as his prognosis may be, it conjures the worrisome idea of pegging the interest rate at artificial levels that may not reflect the realities of the economy. The interest rate is the price at which banks lend money to borrowers hence it is the price for borrowed money. Given Nigeria’s free market economy, any attempt to control the price of any resource such as credit through regulation outside the extant protocol of the CBN, and as is being advocated by El Rufai, may trigger fears of government interference in the dynamics of the free market and launch retrogressive tendencies associated with lender apathy. Such an outcome may not help an economy that is needy of fast track growth like Nigeria’s.
Nevertheless the concern raised by el-Rufai borders on the central challenge of the Nigerian economy and defines an area which the present administration of President Muhamadu Buhari needs to direct its focus to in order to make appreciable change in the economic fortunes of the citizenry, with over 95% of them trapped in the informal sector which hardly benefits from the credit facilities in banks, for the simple reason of lack of capacity to access such facilities.
In the same vein the reference by el-Rufai to “drug barons and traders” as the best favoured by the interest rate regime alludes to a crying need for availing the real sector of the economy of the much needed access to credit. Most investors in the real sector are denied the opportunity for them to benefit from such, often by technical conditions imposed by the banks. El-Rufai’s lamentation is therefore a clarion call to address the plight of these real sector investors by the CBN to enable them move the economy forward. The CBN should therefore balance its interventions in the economy from a more-broad based perspective in order to carry all Nigerians along.
However, the initiative has attracted sharp reactions from some quarters, including the governor of Kaduna State Mallam Nasiru El Rufai who criticised it as being unhelpful to regular business interests in the country. Speaking to an all-women business forum - Women in Business - the governor berated the CBN on the grounds that the increase placed loans in banks out of the reach of most normal businesses in the country except for “drug pushers and traders”. He blamed the high interest rates for job losses, arguing that the inability of businesses to borrow money at affordable rates diminished their operational capacities. On that ground he mooted the idea of a legislation that will fix interest rates outside the brief of the CBN.
Populist as his prognosis may be, it conjures the worrisome idea of pegging the interest rate at artificial levels that may not reflect the realities of the economy. The interest rate is the price at which banks lend money to borrowers hence it is the price for borrowed money. Given Nigeria’s free market economy, any attempt to control the price of any resource such as credit through regulation outside the extant protocol of the CBN, and as is being advocated by El Rufai, may trigger fears of government interference in the dynamics of the free market and launch retrogressive tendencies associated with lender apathy. Such an outcome may not help an economy that is needy of fast track growth like Nigeria’s.
Nevertheless the concern raised by el-Rufai borders on the central challenge of the Nigerian economy and defines an area which the present administration of President Muhamadu Buhari needs to direct its focus to in order to make appreciable change in the economic fortunes of the citizenry, with over 95% of them trapped in the informal sector which hardly benefits from the credit facilities in banks, for the simple reason of lack of capacity to access such facilities.
In the same vein the reference by el-Rufai to “drug barons and traders” as the best favoured by the interest rate regime alludes to a crying need for availing the real sector of the economy of the much needed access to credit. Most investors in the real sector are denied the opportunity for them to benefit from such, often by technical conditions imposed by the banks. El-Rufai’s lamentation is therefore a clarion call to address the plight of these real sector investors by the CBN to enable them move the economy forward. The CBN should therefore balance its interventions in the economy from a more-broad based perspective in order to carry all Nigerians along.
glean: Daily Trust
No comments:
Post a Comment
Disclaimer: Comment expressed is totally EXCLUDED from the viewpoint of Steonyia Broadcast