The Governor of the Central Bank of Nigeria (CBN), Mr Godwin Emefiele, has consistently justified his deviation from the statutory monetary policy and financial system stability as he grapples with the challenges of reviving an economy on the throes of recession. One area that has continued to generate anxiety is the level of interest rate which presently still hovers around 16 per cent. Key players in the economy, especially in the real sector, have continued to demand for a reduction in the rate at which they borrow. On the surface, it may seem advisable.
As a policy option, if adopted, it may have short term benefits but with long term implications that will not augur well for the economy. That actually is the argument of the CBN Governor who said that the apex bank will be failing in one of its key mandates if it cuts interest rates at this time. He disagreed with the proponents of a rate cut and noted that high inflation was inimical to economic growth.
Interest rates, he posited, reflect not just the cost of capital but also the cost of doing business. To that extent, we observe that the complete picture will not be clear if interest rates were taken only from the perspective of the lender. A salient point the government’s banker calls attention to is the issue that has to do with infrastructure generally. For him, it stands to reason that as most banks individually provide their own security, power, and other infrastructure, to break even and create wealth for all stakeholders therefore, some of those costs, necessarily, have to be passed on to customers in the form of high interest rates. Instead of approaching the issue through executive fiat, he has decided to use moral suasion to encourage Deposit Money Banks (DMBs) to be more considerate in their charges on customers.
While this is being worked out, the CBN has continued to play its role in other sectors of the economy such as education through the provision of centres of excellence in some universities across Nigeria to encourage world class research as well as to stimulate growth.Emefiele, on assumption of office, pushed that laudable policy even further. On a regular basis, he has persistently challenged tertiary institutions to focus on research that will boost economic development, just as he assured that the CBN will work with relevant stakeholders in the educational sector to restore it to its pristine days of glory.
It is pertinent to note that the CBN had and is still introducing policies at both the management and the Monetary Policy Committee (MPC) levels targeted at stabilizing the economy and to check a further depletion of Nigeria’s external reserves in the face of dwindling accretions and increased demand for foreign exchange. One of these is the flexibility in the foreign exchange market with priority placed on the most critical needs for foreign exchange. This, invariably, led to the restriction of access to the Forex market for a category of 41 commodities which were hitherto drains on the country’s reserves.
The CBN on the watch of Emefiele is continuing to impact on fiscal policy with target on improved productivity of labour and increased disposable incomes for workers as a way of stimulating household consumption and business investments.
Perhaps, in our opinion, one of the most outstanding policy shifts of the Emefiele tenure at the CBN is towards agriculture considered the largest employer of labour in the country. In collaboration with relevant Ministries and agencies, the CBN had contributed greatly to the revamping of the sector through its Anchor Borrowers’ Programme (ABP) and other agricultural interventions. The bank has so far committed well over N29 billion in this regard with active participation of 24 States of the federation.
Still on the matter of policy options adopted by Emefiele to give an economy in recession a kiss of life, the CBN is spearheading efforts to explore other sources for more revenue through the pursuit of non-oil exports, enactment of import-reducing policies that will encourage Nigerians to look inwards and discourage the importation of items that can be produced in the country.
As radical as most of these policies seem, the way out of the current situation, in our opinion, is for the governments at all levels to complement the CBN’s measures by investing in basic infrastructure such as roads, bridges, airports, railways and information technology. Furthermore, we suggest that the governments continue to explore viable opportunities for Public Private Partnership projects with potentials for lucrative returns to investors so as to help drive economic growth.