Financial experts not happy with retained 14% lending rate

The CBN rose from its bi-monthly MPC meeting with a resolve to retain the Monetary Policy Ratio (MPR) at 14 per cent and the Cash Reserve Ratio (CRR) at 22.5 per cent.

The experts told the News Agency of Nigeria (NAN) in Lagos that considering the present economic reality, they expected a cut in the lending rate to stimulate the economy.

Prof. Sheriffdeen Tella, a senior economist at the Olabisi Onabanjo University, Ago- Iwoye, Ogun, said “everybody is expecting the CBN to cut down lending rate.”

Tella said that retaining the MPR at 14 per cent was not in tandem with fiscal policy measures, which according to him, was supposed to be expansionary.

The economist said “it appears that the CBN is not looking at the nation’s inflation as cost pushing; rather, the ban sees it as demand-driven.

“Everybody is expecting a cut in the lending rate to stimulate the economy, especially during the era of inflation and recession.”

Also, Dr Chijioke Mgbame of the Department of Accountancy, University of Benin, said the refusal of the CBN to reduce the lending rate was a denial of the present economic reality.

Mgbame said that maintaining a hike in the benchmark interest rate meant that the cost of borrowing money for investment would also be high.

“I expected the CBN to bring down the interest rate so that investors will get access to cheap capital for investment,’’ Mgbame said.

According to him, controlling inflation and managing the interest rate are necessary evils to deal with, but stressed that lowering the interest rate is the best option for now.

He added that the regulation of the lending rate was necessary to revive the manufacturing sector.

NAN reports that the apex bank in arriving at its decisions noted that monetary policy alone is sufficient in addressing the present economic reality.

The committee nursed the fear that a robust liquidity through the cutting down of the lending rate would be used by currency speculators to put pressure on the Naira.

The MPC considered the numerous analyses and called for rates reduction but came to the conclusion that the greatest challenge to the economy today remained incomplete fiscal reforms which raised costs, risks and 23 uncertainties.

The committee was of the view that in the past, the MPC had cut rates to achieve the above objectives.

It, however, said it found that rather than deploying the available liquidity to provide credit to agriculture and manufacturing sectors, the rate cuts provided opportunities for lending to traders.

“These same traders deployed the same liquidity in putting pressure on the foreign exchange market which had limited supply, thus pushing up the exchange rate,’’ the CBN said.