CBN cuts interest rates

• MPR reduced to 11%, CRR 20%
• ‘Nigeria’s interest rates among highest worldwide’
• Reps seek review of cashless policy

BUOYED by the success of President Muhammadu Buhari’s Treasury Single Account (TSA) policy implementation, which has seen much of Federal Government’s funds mopped up from commercial banks across the country to the Central Bank of Nigeria (CBN) coffers, the apex bank yesterday maintained its rates easing which it commenced two months ago with the reduction and harmonisation of the Cash Reserve Ratio (CRR) for both the public and private deposits to 25 per cent.

In another development, the House of Representatives yesterday called for a review of certain aspects of the current cashless policy introduced by the Central Bank of Nigeria.

This came as it resolved to examine the level of compliance with the policy by government agencies and private businesses, with a view to ensuring smooth implementation.

Yesterday, at the CBN’s last Monetary Policy Committee (MPC) meeting for the year 2015, the apex bank openly declared that it has come to the end of its monetary tightening and announced a reduction in its Monetary Policy Rate (MPR), the key rate which drives interest rate in the country and for which it lends money to the commercial banks – moving it down from 13 percent where it has been for almost two years to 11 percent just as it moved the Cash Reserve Ratio (CRR) – the banks’ depositors cash reserve requirement to be held by the apex bank from 25 percent to 20 percent, a development that will allow banks access to more of depositors’ fund for investment.

Addressing newsmen at the end of the meeting in Abuja yesterday, the CBN Governor, Mr. Godwin Emefiele, said the action was in response to the need to activate the real sector of the economy by making sure that both the apex bank and the commercial banks play their fundamental roles to reinvigorate the real sector in the country’s diversification drive.

Accordingly, he declared that the relief in the reduction of the CRR would however be enjoyed only by banks that key into the apex bank’s plan of boosting agriculture and the real sector aimed at creating employment and productivity.

Emefiele said: “The MPC emphasised that the liquidity arising from the reduction in the CRR to 20 percent will only be released to the banks that are willing to channel it to employment generating activities in the economy such as agriculture, infrastructure and solid minerals.
In summary, the MPC voted to: Reduce the CRR from 25.0 percent to 20.0 percent; Reduce the MPR from 13.0 percent to 11.0 percent and change the symmetric corridor of 200 basis points around the MPR to an asymmetric corridor of +200 basis points and -700 basis points, around the MPR.”

The import of this development, he explains, is to forestall the surreptitious behaviours of banks, which take advantage of high interest rate margin to keep money at CBN, earning interests on idle cash, while ignoring real sector.

Under this new asymmetric corridor of +200 basis point and -700 basis point around the MPR, it becomes a disincentive for banks to dump their idle funds with the CBN and earn 13 percent as they would now earn only four percent where as if they lend it out to entrepreneurs they earn higher premium.
Reacting to the new interest rate regime, a Development Economist, Mr. Odilim Ewegbara, commended the action but said it is coming too late in the day.

According to Ewegbara: “No doubt next MPC meeting, we will expect MPR further decreased to about 9 percent after all there is no genuine reasons for Nigeria’s interest rates to be among the highest rates in the world.”

He attributed the development to the success of the TSA policy and asked the apex bank to further reduce the key interest rates to protect the country from the arbitrage enjoyed by portfolio foreign investors.

The CBN governor explained that reduction in the CBN key rates was aimed at ensuring that there are sufficient funds in banks at competitive rates to drive the credit system, especially in stimulating the real sector of the economy.
However, unlike “the business as usual”, the apex bank said it has evolved modalities, which shall be communicated to banks immediately, aimed at ensuring that the resultant liquidity from the easing programme are directed to the targeted sectors.

Meanwhile, the apex bank governor also yesterday clarified that any Nigerian bank has capital adequacy issues, declaring that insinuations in the media concerning some two banks are false.

He maintained that the CBN has just concluded its stress test of commercial banks in the country and found none with any issues that would warrant anxiety.

The House of Representatives urged the CBN to review the policy on foreign exchange in a manner that will not only continue to protect the country’s foreign currency, but ensure that Nigerians realistically and legitimately transact business globally.

As a way out of the seeming non-compliance, the House has further asked for an increase in the payment for online transactions limit from $300 to $500, Point of Sales (POS) transactions from the current $1,000 to $5000.

The resolution was the outcome of the unanimous adoption of a motion sponsored by Edward Pwajok, who expressed worry that the objectives for which the CBN introduced the policy seemed not being achieved due to non-adherence to the guidelines by both public and private financial institutions.