Central Bank of Nigeria (CBN) Governor Godwin Emefiele yesterday promised a gradual reduction in interest rates, signalling a shift from the monetary policy of his predecessor, Sanusi Lamido Sanusi.
This will be the first time in two years that the CBN will be aiming to reduce the interest rates to single digit. The rates have remained at 12 per cent since 2011.
Speaking at a news conference at the CBN, Abuja Headquarters, Emefiele said.
“There is no doubt that reducing interest rates and maintaining exchange rates are very daunting twin goals,” adding, “however, the central bank will work assiduously to ensure that these goals are mutually achieved.”
But, analysts warned that reducing interest rates too quickly could hurt the naira and stoke inflation.
Emefiele said: “High interest rates create a perverse incentive for commercial banks to simply buy virtually risk-free government bonds rather than lend to the real sector.
To enhance financial access and reduce borrower cost of credit, the CBN, he said, “would pursue policies targeted at making Nigeria’s Treasury Bill (T-Bill) rates more comparable with other emerging markets and by extension, pursue a reduction in both deposit and lending rates.”
A reduction in deposit rates he said “would encourage investment attitudes in savers, a reduction in lending rates would make credit cheaper for potential investors.”
The CBN, he said, would also begin to include the “unemployment rates as one of the key variables considered for its monetary policy decisions, but in the interim, will continue to maintain a monetary policy stance, reflecting the liquidity conditions in the economy as well as the potential fiscal expansion in the run-up to the 2015 general elections.”
Emefiele said all charges on deposits have been stopped with immediate effect, adding that this is to ensure that the CBN has more cash under its control.
This decision Emefiele said, was taken because “we have become aware of complaints by customers particularly regarding the charges being imposed for cash deposits. This has resulted in customers devising various means to avoid the charges through opening of multiplicity of accounts and other disingenuous behaviour all aimed at undermining the objective of this policy.”
On Exchange Rate Policy under his tenure, Emefiele said: “The bank will continue to focus on maintaining exchange rate stability and preserve the value of the domestic currency.
“The will sustain the managed float regime in the management of the exchange rate, as this will allow the bank to intervene when necessary to offset pressures on the exchange rate and to support this strategy, we will strive to build-up and maintain a healthy external reserves position and ensure external balance.”
He reiterated that “Charges on withdrawals, in view of their eventual elimination, remain sustained at the current 3 per cent for individual transactions exceeding N500,000 and 5 per cent for corporate transactions exceeding N3 million. Currently, these fees go entirely to the commercial banks. However, going forward, the Central Bank shall determine what percentage of these fees on excess drawings that will be redeemed by the bank while the rest shall be remitted to the CBN.”
The core of his vision, he said, would be “to effectively manage potential threats to financial stability, and create a strong governance regime that is conducive for financial intermediation, innovative finance and inclusiveness.”
This vision, he noted, would be anchored on two main pillars which are: “managing factors that create liquidity shocks and zero tolerance on practices that undermine the health of financial institutions.”
To achieve these goals, the CBN, he said would work with the relevant stakeholders to aggressively shore up reserves. “We hope to engage the fiscal and political authorities, as well as other stakeholders to improve our policy buffers, which will further create space for the Bank to implement monetary policy using its limited instruments.
The CBN’s new agenda for development finance, Emefiele said would be hinged on the core principle “that the CBN will act as a financial catalyst by targeting predetermined sectors that can create jobs on a mass scale and significantly reduce our import bills.”
Some of the bank’s developmental functions, he said “will include credit allocations and direct interventions in key sectors of the economy such as Power, Agriculture, MSME, Oil & Gas, and Health. While playing an active developmental role, the CBN will not only operate within the law and its mandate but will also be transparent about what it believes as strategic and appropriate interventions.”
