Godwin Emefiele, governor of the Central Bank of Nigeria, CBN, has vowed to pursue a gradual reduction in interest rates. He said this at his maiden press briefing Thursday. Emefiele said the policy would be aimed at seeking a reduction in overall lending rates to make it cheaper to invest. Interest rates have remained at 12 per cent since late 2011 despite several measures taken to tighten liquidity, gradually bringing inflation down. Despite that, businesses continued to complain that lending rates were too high.
“A comparison of selected macro-economic aggregates from some emerging market countries, including South Africa, Brazil, India, China, Turkey and Malaysia indicate that Nigeria has one of the highest Treasury Bill rates. Such high rates create preserved incentives for commercial banks to simply buy virtually risk-free government bonds rather than lend to real sector,” said the new CBN governor. He said to enhance financial access and reduce the cost of borrowing, there was the need to pursue policies targeted at making Nigeria’s Treasury Bill rate more comparative to other emerging markets.
According to Emefiele, while reduction in both deposit rates would encourage investment attitude in savers, a reduction in lending rates would make credit cheaper for potential investors. “The bank will also begin to include unemployment rates as one of the key variables considered for its monetary policy decisions. In the interim, we will continue to maintain a monetary policy stance, reflecting the liquidity conditions in the economy as well as the potential fiscal expansion in the run-up to the 2015 general elections,” he said.
On the exchange rate policy, he said the key goal would be to maintain exchange rate stability in view of the high import dependent nature of the economy and the significant exchange rate it passed through in recent years. Explaining further, he said a systematic depreciation of the Naira would literarily translate to considerable inflationary pressure with attendant effect on macro-economic stability. “Therefore, under my leadership, the bank will continue to focus on maintaining exchange rate stability and preserve the value of the domestic currency. We will sustain the managed float regime in the management of the exchange rate as this will allow the bank to intervene when necessary to offset pressure on the exchange rate. To support this strategy, we will strive to build-up and maintain a healthy external reserve position and ensure external balance,” Emefiele said.
On financial system stability, he said the bank would continue to sustain the effective management of the potential threats and avoid systemic crisis. “The core of my vision is to effectively manage potential threats to financial stability and create a strong governance regime that is conducive for financial intermediation, innovative finance and inclusiveness. In this regard, we hope to anchor on two pillars of management factors that create liquidity shocks and zero tolerance on practice that undermine the health of financial institutions,” he said.
Emefiele promised to work with stakeholders to aggressively shore up the reserve and also engage both the fiscal and political authorities. He assured Nigerians of enhanced banking supervisory purview over the banking system and strengthening of risk-based supervision mechanism to ensure overall health and banking system stability.