Emir Sanusi, others express divergent views on CBN’s monetary policies

Muhammad Sanusi II

Prominent experts and economic analysts on Thursday expressed divergent views on the Central Bank’s decision to retain benchmark monetary and fiscal policy rates at prevailing levels would impact the economy.

The Monetary Policy Committee of the Central Bank in a unanimous resolution opted to leave the Monetary Policy Rate (MPR), which sets the lending rate for banks and businesses, unchanged at 14 per cent.

The Cash Reserve Ratio, CRR, which specifies the minimum fraction of customers’ total deposits commercial banks could hold as reserves either in cash or deposits with the CBN, was held at 22.5 per cent.

Equally, liquidity ratio, which sets the limits for banks repayment of short-term creditors out of their total cash, was left at 30 per cent, with the symmetric window kept at +200 and -500 basis points around the MPR.

Despite criticisms that the decision may be out of sync with prevailing economic reality, particularly the current economic recession, former Central Bank, CBN, governor and current Emir of Kano, Mohammed Sanusi, said there were some positives to take away.

Following the clamour for interest rates to be lowered to encourage borrowing to reflate the economy, Mr. Sanusi said he was concerned the CBN would succumb to the pressure.

He said not yielding to the pressure from the fiscal authorities “was a big positive,” as it showed the CBN was beginning to reclaim its independence.

The traditional ruler said any decision by the MPC to lower the interest rates at this time would not have yielded any benefit to the economy.

“If MPR was lowered by either 100 or 200 basis points, the decision would hardly inspire rapid increase in credit growth to reverse a downward trend in output,” Mr. Sanusi said in Lagos Wednesday.

“Such a decision would further fuel inflation and reduce the yield on fixed income when trying to attract foreign exchange.”

He said retaining the benchmark economic policy rates was part of immediate impetus the Nigeria needed to attract foreign exchange into the country’s economy and portfolio investment.

According to the former CBN governor, with the Naira currently undervalued, fixed income in the economy was suffering a high yield.

“If the CBN allows people to come into the country with their dollars and sell at whatever rate people want to buy, people would see they are going to make huge profits on fixed income or the equities market and currency appreciation, there would be huge liquidity problem in the market,” he argued.

He said so long as the CBN would not allow free inflow of dollars into the economy, to move the Naira to its fair value, the market would revolt if floating exchange policy is allowed to determine the value of the national currency.

“If you don’t have dollars in your financial system, your currency is weak. So, you must find a way to attract dollars?’ he said.

Dismissing insinuations portfolio investors were the final solution to the current economic crisis, Mr. Sanusi said anyone who thinks long term investors were the answer got it wrong.

According to the former CBN governor, MPC’s decision to keep high interest rate would keep yields high to attract dollars, stabilize the national currency, and improve liquidity in the economy.

With greater inflow of dollars, he said, more manufacturers would have enough to import raw materials for better productive activities, to reverse all government policy missteps in the last 15 to 18 months.

Ahead of the MPC meeting, finance minister, Kemi Adeosun, apparently voicing concerns of manufacturers, urged the CBN to lower interest rates from current 14 per cent to support government stimulus plan to borrow cheap funds locally, to bailout the economy.

Regardless, the CBN governor, Godwin Emefiele, said keeping the economic policy rates at prevailing levels help tighten liquidity in monetary policy to limit the balance of risks against one of its key functions to stabilize price.

He said similar decisions to lower the rates in the past hardly impacted real sector development, as credits received by manufacturers at lower rates were diverted.

Chief Executive, Global Analytics Consulting, an Abuja-based economic analytics consulting firm, Tope Fasua, agreed with Mr. Emefiele, saying manufacturers asking for FOREX were traders.

Mr. Fasua said they were in the habit of diverting FOREX allocations meant for importation of raw materials to other businesses and denying the people the benefits of their services.

For Odilim Enwegbara, a development economist and analyst, the CBN was wrong not to have reduced the lending rate, particularly at this period of economic recession.

He said banks were always comfortable with high interest rates, whereas investors require low interest facilities during recession to get raw materials to sustain productivity.

“Keeping lending rate high would negatively impact the economy at this time. But, CBN and the banks always believe foreign investors would be attracted by a regime of higher interest rate to invest in the country. This is not true. Clearly, they are not working in the interest of bringing the economy out of recession,” he said.

The impact of leaving the policy rates unchanged, he pointed out, would suggest nothing has changed.

However, he said moving to 13 per cent could have suggested the CBN wanted to encourage local investors.

“With high interest rates, banks would not be lending. They are only buying government bonds and treasury bills. They need high interest to have returns on investment.

“CRR on public deposits should be moving towards 100 per cent, while CRR on private deposits should be moving towards zero if the CBN was working in the interest of the people and the economy. The two have since been in favour of the banks,” he said.


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