FORMER CBN GOVERNOR SHUNS ON INTEREST RATE
By OMOKHUALE PUAH
The former governor of the Central Bank of Nigeria (CBN), Muhammadu Sanusi, had on Wednesday summoned the (CBN), for a major policy disagreement with the Minister of Finance, Kemi Adeosun, on interest rate.
During an MPC meeting held on Monday and Tuesday, the Minister of Finance, advised the Apex Bank’s Monetary Policy Committee to reduce the rate on interest, by reducing its monetary policy rate (MPR) from its 14 percent, to encourage investment and restore the economy.
It was also stated during the meeting that the MPC, which is the highest policy making body in the CBN, has chosen to hold on to the policy rate in an agreed vote by the members on Tuesday.
Sanusi, also said that he is in support of the MPC’s decision on the grounds that it supports the independency of the apex bank.
During the meeting, he stated that he worried over the Minister of Finance’s position and feared that the Apex bank could yield to the minister, but he became pleased by the Apex bank’s decision, when it was announced.
In his words “I was concerned about CBN succumbing, but it is a positive one to note they have started being independent” he said.
After Sanusi made these remarks yesterday, at the Afrinvest Launch, Nigerian Banking report 2016, he insisted that even if the MPR gets lowered to a 200 bases point, it would not increase banks credit onto the economy, because there are lots of limiting factors.
He further noted that a lower MPR implies lower yields on more market instruments, which are discouragements to investments in the money markets, especially in the fixed income security segment and ultimately put a restraint on foreign portfolio investment inflows.
According to Sanusi, a normal MPR would encourage inflation, which is already high and the overvaluing of naira on the issue of foreign investment inflow.
He said that “though CBN was right, following its flexible exchange policy, but what was needed was, getting the policy on its right path”.
In his argument, “ the naira was currently overvalued and if the policy was implemented to allow the market forces and have the naira to find its true level, it would attract inflows of foreign exchange which is very vital and finding solutions to the current economic recession” he said.
With the fact that market does not obey orders, Sanusi said that it is only profit and safety that drives investment flows.
He explained that if the economy receives a greater inflow of dollars, it would correct most of the troubles associated with all the failures that have occurred so far, which also make the market, would see the narrowing of the gap between parallel and interbank exchange rates.
Following the macroeconomic challenges, Sanusi observed that the charge of the government is fixed on taxation, but he stated that “this ought to be reviewed critically in the light of how much it could achieve” he said.
Sanusi therefore advised; “we must redeem our minds from the thoughts of government, raising money to buid infrastructure and raising monies for big industries, we must look at creating a conducive environment for private capital inflow”…. He advised.
He however added, that “following the days demographics, in 20 years from now, Nigeria will comprise of over 80 million indigenes, between the ages of 20 and 40 and obviously, with the current economic model of big government, with its focus on taxation and government led employment and development, the country will never be able to accommodate this population.
He finally advised the government, to sell some of its asset, in such a transparent manner that will not hurt the country and they should have a buy back option on the sale transactions.