Godwin Emefiele, Central Bank of Nigeria, CBN, governor, has attributed the high interest rate in the country to the high inflation rate and rising operating costs in the banking sector.
He said this in a lecture titled: ‘The dilemma of monetary policy and exchange rate management in a recession: Potential options for Nigeria’ at the second homecoming series of the Economics Department of the University of Nigeria, Nsukka.
Emefiele said with inflation rate still hovering above 16 per cent, the CBN would be failing in one of its key mandates if it reduced interest rates at this time.
The Monetary Policy Rate, MPR, of the CBN is currently 14 per cent, higher than most economies in Africa, prompting Bukola Saraki, Senate president, to ask the CBN to reduce the interest rate as it was affecting the growth and survival of businesses.
Emefiele, however, disagreed with those canvassing for a reduction of interest rates to stimulate growth, because he believes that high inflation rate is inimical to economic growth.
“Interest rates reflect not just the cost of capital, but also the cost of doing business, and so, we need to also look at interest rates from the perspective of the lender. Given that most banks have to individually provide security, power and other infrastructure, it is not surprising that some of these costs are passed on to customers in the form of high interest rates,” said Emefiele.
He added that the CBN would continue to rely on moral suasion to encourage Deposit Money Banks in the country to be more considerate in interest charges on customers.
Emefiele emphasised the need for fiscal policy to target improved productivity of labour and increase disposal incomes for workers. According to him, the fiscal policy should consider ways of stimulating household consumption and business. He said the CBN, working with relevant government agencies, would continue to stimulate the agricultural sector through its Anchor Borrowers’ Programme, ABP, and other agricultural interventions.
So far, the CBN has committed about N29 billion to the ABP with the active participation of 24 states of the federation.
Emefiele thus challenged tertiary institutions to focus on research that would boost economic development, while assuring that the CBN would work with relevant stakeholders in the educational sector to stimulate research for the overall good of Nigeria.