CBN’s lending rate strangling private sector

Sanusi Lamido

 The private sector suffers from CBN’S high lending rate.

The high lending rate by the Central Bank of Nigeria, CBN, is squeezing prospective private sector borrowers from the banking halls, as aggregate credit to businesses in the sector has maintained a steady decline in recent times, the President, Lagos Chamber of Commerce and Industry, LCCI, Goodie Ibru, has said.

Fixing lending rates is a function of members of the Monetary Policy Committee, MPC, of the CBN, which meets every two months to review inflationary, monetary and other economic performance trends before arriving at a rate which the apex bank lends to money deposit banks, MDB, for prospective business borrowers.

The MPC has retained lending at about 12 per cent at the end of three successive meetings since last July, as part of efforts to protect the Nigerian economy against the uncertainties surrounding the global economy, particularly the negative impact of a potential large inflow of “hot money” as a result of further monetary easing in the United States and Europe.

But Mr. Ibru has blamed the steady decline in aggregate credit to the private sector in the country to the refusal of the MPC to reduce the Monetary Policy Rate, MPR, from 12 per cent by banks. He underlined the need for a review and subsequent reduction of the current and other monetary rates.

MPR is the minimum rate approved by the CBN for MDBs to lend money to prospective businesses.

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“A Central Bank of Nigeria Economic Report revealed that aggregate net credit by banks to the domestic economy fell by 2.7 per cent and 0.1 per cent in the second and first quarter of the year, respectively,” Mr. Ibru said.

“This is largely due to the sustained monetary tightening, significant rise in government domestic borrowing, and attractive yield of government bonds and treasury bills. The tight monetary policy stance continues to keep funds out of the reach of the private sector.”

According to the LCCI President, the plan to issue new treasury bills to absorb all maturing bills in the fourth quarter would further tighten liquidity and negatively affect the private sector, pointing out that since July 2010; the MPC has adjusted the MPR by 100 per cent from six per cent to 12 per cent.

“The committee has sustained the symmetric corridor at 200 basis points and retained Cash Reserve Ratio, CRR, at 12 per cent. The MPC also retained the minimum liquidity ratio at 30 per cent. It is important for the monetary authority to commence an adjustment of monetary policy course, albeit gradually, toward boosting private sector credit, domestic demand, employment and growth,’’ he said.


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