CBN ignores Finance Minister, retains interest rate at 14%

The Central Bank of Nigeria (CBN) yesterday maintained the interest rate at 14%, ignoring demands from the Minister of Finance to reduce the nation’s interest rates as a means of reviving the ail­ing economy.

The Monetary Policy Com­mittee (MPC) of the CBN rose from its two-day meeting in Abuja to announce that it was retaining the rate set in July.

The decision is in direct conflict with the views of the Finance Minister, Mrs. Kemi Adeosun, who had on Mon­day called for the reduction in interest rates to enable the gov­ernment take more local loans to boost the economy.

The CBN’s disregard of the Finance Minister has revealed sharp differences between the managers of the nation’s econ­omy.

The economy went into re­cession after second quarters figures by the National Bureau of Statistics (NBS) showed that the economy shrank by 2.06 percent.

With inflation running at 17.6 percent, disagreement be­tween the CBN and the Finance Minister will do little to aid the recovery of the economy.

While Adeosun stated that growing the economy rather the controlling inflation should be the priority, the CBN Gover­nor, Godwin Emefiele said rate reduction in the past did not see increased lending by com­mercial banks to the real sector.

Emefiele said the MPC had considered calls for a rate cut but concluded that the biggest challenges the economy fac­es were “unsystematic and in­complete structural reforms” which raised “cost, risk and un­certainty”.

He said members empha­sised that “improved fiscal ac­tivities, especially the active implementation of the 2016 federal budget, and payment of salaries by states and local governments would go a long way in contributing to econom­ic recovery.

“In the same direction, the committee urged the fiscal au­thorities to consider tax in­centives as a stimulus on both supply and demand side of eco­nomic activities”, he added.

But Adeosun had noted that lower interest rates will allow the government to take on more local loans without increasing the burden of debt servicing.

She said: “We need lower interest rates. If we drive the economy and there is growth, that is the payback. I would rather seek growth, we can manage inflation, let’s stimu­late the economy.

“Our economy is largely import driven so we are always going to have problem. At the moment we still have two rates for the Naira, it needs to be re­solved; we need to narrow the spread. We need to move from a consumption led one, if Nigeria just does what it says it will do, which is investing in infrastruc­ture and ease of doing business, it will be fine”, she explained.

She added: “We need lower interest rates, because when we are borrowing and interest rates go up, it increases our cost of debt service and it reduces the amount of money that is availa­ble to spend on capital projects”.