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.
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