Warns banks against diversion of credit facility
The Central Bank of Nigeria (CBN) yesterday took a two-pronged approach aimed at easing credit flow to the real sector of the economy by reducing both the benchmark interest rate – the Monetary Policy Rate (MPR) and the Cash Reserve Ratio (CRR) to 11 per cent and 20 per cent respectively.
Before the reduction, MPR was at 13 per cent while the CRR stood at 25 per cent. CBN Governor, Mr. Godwin Emefiele, told newsmen yesterday in Abuja that the cut was part of efforts by the Federal Government to improve the country’s economy. Emefiele, who spoke on the outcome of the committee’s meeting, said the cut would also ensure that more funds were released to Deposit Money Banks (DMBs) to boost lending to agriculture and solid minerals sectors. According to him, this will improve their productivity and provide added avenues of job creation.
“The MPC, by a vote of eight out of 10, reduced the MPR from 13 per cent to 11 per cent, while two members voted for retention of the rate at 13.0 per cent. “Seven members voted to reduce the CRR from 25 per cent to 20 per cent, while three members voted to hold. “In addition, eight members voted for an asymmetric corridor of +200 percent to 700 percent, while two voted to retain the symmetric corridor of +/-200 per cent around the Monetary Policy Rate,” he said.
Emefiele said the committee came to the decision in consideration of the weakening economy, particularly the low output growth, rising unemployment and the uncertainty of the global economic environment. “The committee underscored the need for banks to ensure that measures taken to stimulate the economy translate into increased lending to the sectors with sufficient employment capabilities and the potential to generate growth. “Accordingly, the MPC agreed that going forward, any attempt by the CBN at easing liquidity into the system shall be directed at targeting the real sector, infrastructure, agriculture and solid minerals.
“The MPC further directed all bank managements to put in place necessary regulations to ensure strict compliance by the DMBs. “This is to ensure that employment and productivity is stimulated, while also moderating prices,” he said. The apex bank boss also warned commercial lenders to comply with the new policy directives targeted at growing specific sectors such as agriculture, power, solid minerals whose long term objectives are employment generation.
Emefiele said a formal circular would be addressed to the banks in respect of the new directive. According to him, “the MPC was, particularly, concerned that the previous liquidity injections embarked upon through lowering of the CRR, in the last MPC, has not transmitted significantly to improved credit delivery to key growth and employment in sensitive sectors of the economy. Rather, more credit was to sectors with low employment elasticity.” He said the committee restated its commitment to evolve and implement measures that would be supportive of consolidating and strengthening output growth with an eye on price stability. Emefiele said:
“At the last policy committee meeting, we took the decision to begin to ease and that was why we reduced the CRR from 31 to 25 per cent. Unfortunately, we thought that by allowing the bank to have access to the liquidity, that the funds will be channeled to those sectors that we think would be employment-generating sectors; that will support growth, stimulate development and reduce the level of unemployment.
Unfortunately, that has not happened. “But what we have decided to do at this meeting is to say yes, we must stimulate growth, we do not have a choice in the face of challenges in the global economy and Nigeria is not isolated at this time that we must commit to growth. “What we have decided is that, yes, we continue to ease going forward, we will ensure that funds that are going to be injected into the system, banks are going to be expected to ensure that those funds are directed as loans to these sectors.
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