November 30, 2011
The Governor, Central Bank of Nigeria, Mr. Lamido Sanusi, has said a low interest rate regime for the country will be difficult to realise at the moment.
However, his view is contrary to the hint dropped on Monday by the Minister of Finance, Dr. Ngozi Okonjo-Iweala, that the Federal Government might force down the lending rate in order to stimulate borrowing by the real sector of the economy.
Sanusi, who was reacting to the call by the Rivers State Governor, Mr. Rotimi Amaechi, for a reduction in the Monetary Policy Rate from the current 12 per cent, noted that low interest rates would only work in Nigeria when inflationary rate dropped to the barest minimum.
The CBN boss, who spoke during the presentation of the Forbes African Person of the Year 2011 award to him in Lagos on Monday night, said he was not a “magician” who could handle the enormous economic challenges confronting the nation.
Sanusi said, “We have an interesting country in which we want to spend money and want to have a low rate of inflation; we want to have a strong currency, we want to have low interest rate and the governor of the central bank is the magician that is supposed to do all that; but I can’t.
“If you want low interest and stable exchange rates, you’ve got to show some discretion; if you want to reduce the demand for foreign exchange, you’ve got to push through structural reforms that will improve our economy.”
“You can’t be purchasing crude oil and importing petroleum products; but as long as your refineries are not working, you will have to import. Also, as long as you are producing bread, and the wheat for this bread is produced in the United States, you have got to import it from the US,” he added.
The apex bank boss noted that though reducing the MPR was possible, it would require concerted efforts from stakeholders and government agencies in the finance sector to achieve that.
“So, we’ve got to work together and I would like to see a low interest rate, but low interest rate will only happen if we succeed in making Nigeria a low inflation of environment, and I think we can do that,” he said.
The benchmark interest rate has been on the rise since the beginning of the year, as the Monetary Policy Committee of the apex bank had increased the MPR six times this year. The MPC, in an emergency meeting on October 10, raised interest rate by 275 basis points to 12 per cent from 9.25 per cent.
Analysts had decried the development, which they noted, was capable of reducing borrowing and impacting negatively on the real sector of the economy, especially the manufacturing industries.
Okonjo-Iweala had told Reuters, “We are working well with the CBN, talking about coordinating monetary and fiscal policy. There’s always a tension that’s going to be there but I think we have a very good dialogue going on.
“Of course, interest rates were jacked up recently by 275 basis points. That helped in steadying the currency, but I think there’s a room now for us to start aiming for it to come down.”
Sanusi also noted that Deposit Money Banks had to lay off some workers as a result of the crisis experienced by the sector recently.
He said, “Nigerian banks had to lay off people because they had problems, and if the business collapses, workers have to go. And while banks were losing staff, if you look at the numbers, you will know that the banks were also recruiting, and I am not sure that on a net basis, we have not exaggerated job losses in the banking industry.
“But banking is by its nature not a labour-intensive industry; as banking gets more modern and gets more and more dependent on technology, what you are going to find is fewer people handling transactions.”