CBN Gov Godiwn Emefiele, subsidy removal
Godwin Emefiele CBN Governor

Two members of the Central Bank Monetary Policy Committee “MPC” requested for the benchmark Central Bank Monetary Policy Rate “MPR” of 13.5% to be cut to 13.25%. The two dissenting members, SHONUBI FOLASHODUN and MIKE IDIAH of the 11 member committee, both voted for a 25 basis point rate cut.

This was contained in the monetary policy communique detailing each members comments and respective decisions.

According to Shonubi, the CBN must shift focus to “stimulating consumer spending.” He asked for “deliberate effort” to be made to “drive down interest rate.”

“To reduce the shortfall in aggregate demand and take advantage of current negative output gap, focus of policy must include stimulating consumer spending. Banks must expeditiously grow consumer credit for households to take up accumulated stocks, which invariably lead to increased production and aggregate supply, thereby dousing inflationary pressure. In addition, to increase credit accessibility and uptake, deliberate effort must be made to drive down interest rate, especially considering the weakness of the transmission mechanism from the monetary policy and money market rates to deposit and lending rates. CBN’s supply of low price credit is only to complement what banks do.”

He didn’t stop there. He also asked that the government ends its “unnecessary subsidies” Unnecessary subsidies must be discontinued, so as to provide resources for infrastructure, improved social services and reduced cost of doing business. “

Idiah also chimed supporting a move for a rate cut to help accelerate gross domestic product growth. “A reduction in the Monetary Policy Rate (MPR) would accelerate GDP
growth, moderate inflation rate while the monetary aggregates would not 60 exceed their provisional benchmarks for 2019.” 

Why this matters: The members of the MPC do not always vote in line with each other. However, a dissenting voice is worth listening to. The Central Bank has voted to keep monetary policy rates at 13.5% citing rising inflation rates and the need to see out its intervention and monetary policies. But these two gentlemen believe otherwise.

  • By insisting on rate cuts, the two men believe the CBN’s decision to hold rates is not helping banks provide cheap lending to key sectors of the economy.
  • Government borrowing also has a negative effect on private sector lending as well as increasing government borrowing cost.
  • Government borrowing and the need to keep the exchange rate stable often cited as the main reason for sustaining high-interest rates.
  • Asking the government to end unnecessary subsidies also indicate that members of the committee believe strongly that Federal Subsidies are eroding government revenues and denying them of the financial muscle required to stimulate economic growth.

The Central Bank is facing renewed calls for a less hawkish monetary policy stance that can encourage lending to small businesses and consumers. Prime lending rates have hovered between 20-24% in the last 4-5 years making it difficult for small businesses and ordinary Nigerians to seek credit.

Banks, on the other hand, don’t have the incentive to lend to consumers preferring to invest in high yielding risk-free government securities. Latest data from the Bureau of Statistics show the number of Nigerians who borrowed less than N10 million shrunk from 2.98 million people to 2.29 million.

Coronation Research

See communique

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