Monday, 29 August 2016

HIGH MPR AND THE NECESSITY OF REAL SECTOR CONCESSIONS


Godwin Emefiele, CBN Governor
Findings from banks have indicated that the real sector is yet to find a compensatory ground after the recent hike in Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN). The apex Bank had, late last month, raised the MPR to 14 per cent, one of the highest jumps in recent years. The MPR is one of the key drivers of interest rates in the banking industry.

The implication was a major uptick in lending rates across all tenors in the past two weeks. Currently, the prime lending rate has overshot 20 per cent per annum regardless of what the banks and CBN publish in the newspapers. Other categories of lending have spiked to 30 per cent and beyond while microfinance lenders have gone crazy with some at over 10 per cent per month. We had expected such a development. But we also expected special provisions for the real sector to cushion the adverse rate regime.

The CBN had hinged its decision on the negative MPR-to-Inflation position which was then at 12%-to-16.5%. But the apex Bank’s Monetary Policy Committee, (MPC) appeared to be more concerned with assuaging foreign investors over the foreign exchange crises and capital inflows. It was, therefore, bent on fulfilling one of the demands of the foreign investors that monetary rates be reviewed upwards to make the local fixed income market attractive while stimulating their participation in the inter-bank foreign exchange market.

 Up till date, the foreign investors have remained on the sidelines. Worse still, no one knows when they would come, with what volume and impact on the availability of foreign currency for manufacturers’ raw materials imports. The MPR, at 14 per cent, is still negative to inflation.

Analysts forecast that the negative gap would even widen by the time the July 2016 inflation reading is out, while cost pressures are threatening to push it to over 20 per cent by end of this (third) quarter. While agreeing with the CBN on the need to have MPR to, at least, tag along inflation, we believe the adverse implication on cost of borrowing should be addressed urgently through special lending windows.

We note that enough of such windows have been created in the recent times by both the Godwin Emefiele’s regime and his predecessors, but we have also observed poor implementation and low disbursements due, largely, to the stringent conditions attached. This should also be addressed. CBN should be more creative in putting in place security for the special lending rather than making it inaccessible. If the CBN could afford to throw away N7.8 billion to subsidise religious activities with the scarce foreign exchange, we expect the apex bank to be more aggressive in subsidizing funding cost for manufacturers. (Vanguard)