No economy reduces interest rate in times of high inflationary trend—CBN
More revelations have continued to emerge from the weekend’s address of the Governor of Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, during a reception to honour him as Man of the Year by Vanguard Newspapers in Lagos.
In his presentation, he said the apex bank is not yet in a haste to recalibrate the prevailing intersst rate, stressing that “many people do not seem to understand that in times of high inflation, reducing interest rates make inflationary pressures much worse, with a second round effect of making economic growth even less possible”.
“I sympathize with people when I hear the call on the CBN to reduce interest rates. I share their goal of a reduced single digit interest rate regime in Nigeria.
Emefiele noted that “It is also important to note that interest rates reflect both cost of capital as well as cost of doing business”.
“If we can approximate cost of capital as the average saving interest rate, which is about six percent, what then accounts for lending rates at 25 per cent or more? It is cost of doing business. For example, a typical Nigerian bank must employ the services of policemen and other security people deployed constantly to protect its branches.
“The bank must also provide a significant amount for reliable electricity and broadband internet services to keep its systems running. These expenditures only further increase costs of doing business for lenders, a cost they must pass on to borrowers.
“This is why the CBN’s fight to bring inflation down is strongly connected to our quest to ensure that lending rates also come down in due course,” he said.
While ruing out the chances of unbanning the restrictions of forex access on 41 items, he said the policy which is now yielding is meant to conserve foreign exchange and encourage local production to boost the country’s export earnings.
