CBN guarantees N131bn loan, tasks farmers on economic rejuvenation
Godwin Emefiele, CBN governor

BY EMEKA EJERE

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) on Friday validated projections of economic experts when its September meeting ended with a decision to retain the monetary policy rate (MPR) and other policy parameters.

By that decision, the MPR, the Cash Reserve Ratio (CRR), and the Liquidity Ratio remain 11.5 percent, 27.5 percent and 30 percent respectively just as the asymmetric corridor of +100/-700 basis points around the MPR remains.

As expected, the CBN Governor, Godwin Emefiele, in his post-MPC media briefing disclosed that the Committee’s decision was guided by the prevailing economic realities including inflation and impact of the COVID-19 pandemic, exchange rate among others.

Analysts are of the view that the rate-setting body could not have changed the policy parameters in the light of prevailing economic realities and the tight financial position of the federal government.

They are also mindful of the nation’s ballooning debt, rising inflation, pressure on foreign exchange and the third wave of the COVID-19 pandemic across the globe.

President Muhammadu Buhari had late last year signed the 2021 budget of N13.5trn into law, with projected revenue of N7.89 trillion and a plan to fund the N5.39 trillion deficit through borrowing and privatisation proceeds.

Earlier, Minister of Finance, Budget and National Planning, Zainab Ahmed, had while defending the 2021 budget proposals at the sitting of the Senate Committee on Local and Foreign Loans, revealed that Nigeria’s public debt would hit N38tn by December 2021.

In her presentation, Ahmed said the total public debt stock comprising the external and home debts of the federal and state governments as well as the Federal Capital Territory stood at N31.01 trillion ($85.90 billion) as of June 30.

“It is projected, based on existing approval, to rise to N32.51tn by December 31, 2020 and N38.68tn by December 31, 2021,” she disclosed.

More than a decade after the 2008 financial crisis, and six years since the oil crisis, Nigeria’s banking sector continues to grapple with macroeconomic pressures including declining real gross domestic product (GDP) growth rates, rising inflation and unemployment rates, and fluctuating naira-to-dollar exchange rates caused by unstable oil prices.

These factors are combining to dampen consumption and investment and curtail government expenditure, with implications for banking activities. At the same time, policy measures to stabilize the financial system and increase lending to stimulate the production of goods and services have increased pressures on banks.

The CBN’s downward fee revisions to electronic banking charges, which took effect in January 2020 and were designed to ensure the protection of consumer rights as more individuals are financially included, have had a negative effect on banks’ fees and commission income.

Profitability is also being dampened by the CRR, which, at 27.5 percent, is among the highest in the world. The CRR requires banks to park an increasing amount of local-currency deposits with the central bank, and restricts their ability to lend as these reserves are only available for intervention funds.

Experts see a sustained hold on rates until a time when the economic situation would have taken a clear direction.

At its July meeting, the CBN MPC voted to hold all policy parameters constant, believing that it would enable the continued passage of current policy measures in supporting the growth recovery recorded in the second quarter and macro-economic stability.

Accordingly, the MPC had retained the MPR at 11.5 per cent at the end of its meeting in July. It also retained the CRR and Liquidity Ratio at 27.5 per cent and 30 per cent respectively.

Analysts believe that the continuous retention of the benchmark interest rate at 11.5% is in furtherance of the apex bank’s effort to bolster Nigeria’s economic growth through the expansion of credit to the real sector.

A former President, Association of National Accountants of Nigeria, Dr Sam Nzekwe, is one of the experts who did not expect anything contrary from what the outcome of the latest MPC meeting has turned out to be. He had expected the MPC to retain all rates after its September meeting because there is no significant growth in the economy.

Nzekwe said, “The economy is producing minimally. It is only when the economy is moving that you can be moving upward or downward. Things are still fragile. They better maintain the whole indices as they are now, even though it is a good development that the Gross Domestic Product is growing. We have other things that should grow also in the economy.”

The NBS had in its second-quarter GDP report disclosed that Nigeria’s GDP increased by 5.01 percent in the second quarter of 2021, the strongest growth since fourth quarter 2014. This also marked three consecutive quarters of growth following the negative growth rates recorded in the second and third quarters of 2020.

“Nigeria’s Gross Domestic Product (GDP) grew by 5.01%(year-on-year) in real terms in the second quarter of 2021, marking three consecutive quarters of growth following the negative growth rates recorded in the second and third quarters of 2020,” the report reads.

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