By Adebisi Ademola
A member of the Central Bank of Nigeria (CBN) monetary committee, Mr. Balami Hassan has said lending rates by banks remain high and credit to the real sector continued to be low.
This was contained in the CBN communiqué no 118 of the monetary policy committee meeting of May 21 and 22, 2018, with personal statements of members.
According to him, “banks should be further encouraged to take advantage of the derisking on lending provided by the CBN to grow credit in the economy.
“Banks should also be encouraged to improve their roles in the economy through the provision of a secondary market for buying Deposit Money Banks (DMBs) bad loans to clear their balance sheets.”
He noted that the nation’s economy had made some progress, though not all the trends in the macroeconomic variables have been positive.
According to him, the current 1.95per cent growth in Gross Domestic Product (GDP) in the first quarter of 2018, shows that the current growth rate remains fragile.
He said, “The critical question now is how do we stimulate growth in the economy? This cannot be achieved without a trade-off because the growth policy would be counter-productive if its leads to inflation.
“In addition, the extent of Nigeria’s mono-export and import dependence poses a threat to the economy, whenever there is an external shock.
“There is also the importance of signalling to provide clarity when the CBN adjust its economic policies in relation to growth, inflation, and exchange rate.
“An effective policy should be directed at achieving low inflation and stable exchange rate,”he said.
He noted that the 2019 general election threatened inflation in the second half of 2018.
On this he said, “From the outlook in the second half of 2018, inflation is threatened by election related expenditure and also from the outflow of capital which the economy seriously needs.
“The normalization in the US also shows that there is likely to be a pressure that could arise from the external sector and result in the depletion of our reserves (capital flight).
“In the domestic economy, adverse shocks from electioneering campaigns expenditure; injections from 2017 budget which is still being implemented as well as from the 2018 budget which is yet to be passed but is likely to be ready by June/July 2018 are also sources of reversal of the downward trend in inflation.”
He thus urged on the need to adopt unconventional monetary policy strategies to promote growth.
He said, “For example, in the month of April 2018, the public sector did not crowd out the private sector, the NTB rate went down to 10per cent (90 day), from 18per cent.
“The CBN followed up by bringing down the OMO rate, even though it became counter-productive. If fiscal policy is pumping liquidity into the economy, the CBN has to sell dollar in the market to mop-up. In the last three weeks of April 2018, more than $500 million was sold.
“This happened for two reasons: (1) the lack of instrument of high interest rate for foreign investors (2) outflow of funds to the US encouraged by rising interest rate. It should be noted that within Africa, the emerging economies such as South Africa, Ghana and Egypt are also likely destinations for investable funds.”
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