Members of House of Representatives Committee on Banking and Currency led by Jones Chukwudi Onyereri, its chairman, were in Lagos office of the Central Bank of Nigeria (CBN) for an oversight visit. In their desperation, they tried to know why the CBN raised the Monetary Policy Rate (MPR) and the impact it will have on the common man.
Godwin Emefiele, CBN governor, who spoke through Bayo Adelabu, deputy governor, corporate services, CBN, explained that the pressure on the naira, apart from the declining oil prices, was also as a result of liquidity in the banking industry, whereby a lot of frivolous demands were being made by customers.
“We are saying banks should lend to the critical and desirable sectors of the economy and to sectors that can engender production activities, not trading, not to import toothpicks.
“So, we are saying that the only thing to do to stop banks from granting loans to these customers is to mop up more of the monies available to the banks. That was why we increased the CRR on private sector deposits. We believe it will reduce the pressure on the foreign reserves. If we don’t do that, the impact on the common man is going to be increased cost of production,” he said.
Part of the critical decisions taken by the Monetary Policy Committee (MPC) in the just concluded month are the increase by 100 basis points from 12 percent to 13 percent; increase of the Cash Reserve Ratio (CRR) on private sector deposits by 500 basis points, from 15 percent to 20 percent with immediate effect and retention of public sector CRR at its current level of 75 percent.
The MPC also moved the Retail Dutch Auction System (RDAS) mid-rate to N168 from N155, and the band around it widened to +/-5 percent.
However, the CBN advised Deposit Money Banks (DMBs) not to response to the increase in the MPR aggressively, as regards to lending to the economy.
Consequently, the apex bank said that any bank caught in excessive spread in lending rates will be called to order, saying “we expect banks not to respond aggressively to increase in MPR. Any bank that wants to increase rate beyond affordable limit, customers will go to banks with lower rate. Any bank making excessive spread will be called to order.”
According to him, the adjustment in MPR and the CRR is the best the apex bank can do to address the issue of declining external reserve resulting from strong demand for foreign exchange and continued decline in oil price.
The committee chairman however said the CBN had not done very well in regulating the banking sector, as they expected the apex bank to put a cap on interest rates on loans.
The CBN therefore called on Nigerians to be patriotic and patronise locally manufactured goods as a response to austerity measure, saying “we are encouraging companies to go into local production. We can produce raw materials here instead of importing them.”
HOPE MOSES-ASHIKE
