The Central Bank of Nigeria (CBN) is advocating increased consumer credit and mortgage loans as well as granting loans to Small and Medium Enterprises in the country.
It also retained its Monetary Policy Rate (MPR) at 13.5 per cent at the end of its Monetary Policy Committee (MPC) held July 22 and 23 to review trends in the global and domestic economies.
In a communiqué issued at the end of the meeting in Abuja, CBN governor, Godwin Emefiele, said the Committee decided unanimously by a vote of all members present to retain the rate and to hold all other policy parameters constant.
The decision, the CBN governor said, was informed by the conviction of members that key macro-economic indicators are trending in the right direction. “Consequently, the MPC unanimously voted to retain the MPR at 13.5 per cent; retain the asymmetric corridor at+200/-500 basis points around the MPR; retain the CRR at 22.5 per cent; and retain the Liquidity Ratio at 30 per cent.”
Emefiele also disclosed that the committee in its considerations, noted the need to boost output growth through sustained increase in consumer credit and mortgage loans and granting loans to our Small and Medium Enterprises companies. The committee also observed that the management of the apex bank had started the prescription of using benchmark loan-to deposit ratios to redirect the banks focus to lending.
“To mitigate credit risk, the Committee enjoined the Management of the Bank to de-risk the financial markets, via the development of a reliable credit scoring system, similar to what applies in the advanced countries as this will encourage Deposit Money Banks (DMBs) to safely grow their credit portfolios.
“The MPC called on the fiscal authorities to expedite action on expanding the tax base of the economy to improve government revenue and stem the growth in public borrowing.
It further urged the fiscal authorities to build fiscal buffers to avert macro-economic downturn in the event of a decline in oil prices.
The committee also called on the Bank to intensify efforts to encourage Nigerians in the diaspora to use official sources for home remittances, noting that the effort will complement other measures geared towards improving Nigeria’s current account balance. It enjoined the Bank to consider introducing incentives such as the reduction of charges on Diaspora home remittances into Nigeria,” the communiqué read.
Also, on the African Continental Free Trade Agreement (AfCFTA), the Committee urged the Federal Government to put in place measures to aid the economy in realising the benefits and full potentials of that Agreement.
The committee noted in particular, the need to resuscitate moribund industries in Nigeria and improve key infrastructure in order to strengthen the productive base of the economy, create job opportunities as well as boost exports.
It also noted the positive developments towards the creation of a common currency in the West African Zone by January 2020 and commended government and the Central Bank for pushing forward the initiative.
The Committee, however, enjoined the CBN to ensure that Nigeria is properly positioned to maximise the benefits of monetary integration.
The MPC in consideration of the specific policy options to adopt; to hold, loosen or tighten, observed that whilst the focus on growth was imperative, the mandate of price stability remains sacrosanct; that given the happenings in the external sector and the fact that inflation is moderating, tightening of monetary policy should not be an option at this time, as restriction of the capacity of the DMBs to create money could curtail their credit creation capabilities.
On the contrary, the MPC expressed the view that, whilst loosening could increase money supply, stimulate aggregate demand and strengthen domestic production, the economy could be awash with liquidity especially if loosening drives growth in consumer credit without commensurate adjustment in aggregate output.
The Committee, on holding the current monetary policy position, “observed that given the recent actions of the Bank’s management involving the prescription of minimum lending thresholds by the deposit money banks to our Deposit Money Banks (DMBs), it is safe to assume that this action, targeted at stimulating credit growth to the real sector would increase credit delivery to the real sector and accelerate investment and economic growth.
It also observed that since interest rates were currently trending downwards, it is safer to await the full impact of these policy actions on the economy before a review of the position of monetary policy.”
