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Profiles - July 26, 2018

Manufacturer’s Association of Nigeria (MAN) urges CBN to reduce Monetary Policy Rate to boost lending

The Central Bank of Nigeria (CBN) has been asked by Manufacturers Association of Nigeria (MAN) to reduce its Monetary Policy Rate (MPR) from 14% to boost lending to the real sector.

According to MAN President, Dr. Frank Jacobs, the reduction would show CBN’s sincerity and seriousness in boosting lending.

Dr. Jacobs queried the rationale of drafting a plan that would induce the deposit money banks to lend to the real sector at a single-digit rate when the controlling lending rate was 14%.

“It is not going to work, considering past interventions of CBN and the fact that most banks are reluctant to lend to the real sector.

“If the CBN is serious and sincere about stimulating lending to the real sector at 9%, it should start by lowering the MPR to accommodate such decision,” he said.

He expressed disappointment at the retention of the rate at 14%  since July 2016, noting that the high-interest rate had hindered job and wealth creation in the economy.

“So, we may have to take a risk and lower that interest rate to a level that is obtainable in some other countries where you can borrow money at about two to 4%,” he said.

Dr. Jacobs submitted that to spur economic growth, recovery, and industrialisation, funds should be made available to the real sector at 5%.

The Monetary Policy Committee (MPC) of CBN during a meeting had made the decision to retain MPR at 14% to combat inflation due to foreseen increase in government spending ahead of the 2019 elections. The committee also retained the Cash Reserve Ratio at 22.5%, Liquidity Ratio at 30%, and the Asymmetric corridor at +200 and -500 basis points around the MPR.

The CBN governor, Godwin Emefiele, during the meeting said that the MPC was concerned with the decreased number of loans given out by Deposit Money Banks (DMBs) to the real sectors of the economy.

To this end, he said that the bank would continue to churn out policies aimed at encouraging banks to increase the flow of credit to the real sector to consolidate economic recovery.

He said that CBN would implement a framework that would incentivise the DMBs to increase lending to the manufacturing and agricultural sectors, through a differentiated dynamic cash reserve requirement regime.

“This will direct cheap long-term bank credit at 9%, a minimum tenor of seven years and two years moratorium to the employment elastic sector of the economy,’’ Emefiele said.

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