CBN rejects Finance minister's call for interest rate cut, retains benchmark rate at 14%
Wed Sep 21, 2016 09:33:am Business
3.4K By sosa hills
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".
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".
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