Experts differ on likely impact of CBN’s 0.5% rate cut

Governor, Central Bank of Nigeria (CBN), Mr Godwin Emefiele

Some financial experts have expressed divergent views on the likely effects of the reduction of the Monetary Policy Rate (MPR) by the Central Bank of Nigeria.

While some said the rare reduction by 0.5 per cent would have salutary effects on banks’ lending, others said that the rate cut was too small to have any significant effect.

The Monetary Policy Committee (MPC) ended its meeting on Tuesday to announce a cut in the MPR from 14 per cent to 13.5 per cent, saying that the cut was intended to stimulate economic growth.

The MPR is the benchmark lending rate in the country. It is the rate at which banks peg their lending rates.

Mrs Patricia Auta, a financial analyst, says the reduction of the benchmark interest rate from 14 per cent to 13.5 per cent will make borrowing from commercial banks cheaper.

Auta said in an interview with the News Agency of Nigeria on Wednesday in Abuja that the rate cut was a welcome development, especially for small-scale business owners.

“It will make borrowing easier because interest rates will come down. There will also be more economic expansion because people are spending more.

“It will also mean more credit to micro, small and medium enterprises which will lead to more production, create export goods and increase demand for the naira and make naira to appreciate.

“It will also send in a positive signal to foreign investors to bring in more money to Nigeria,’’ she said.

Mr Bello Abubakar, also a financial expert, however,  said that the recent improvement in the country’s macroeconomic indicators was not sufficient to justify a reduction in interest rate.

“I think it’s a bit premature because the anticipated increased minimum wage coupled with the reduction in interest rates will likely increase inflationary pressures in the economy.

“Also, the reduction in rates is very little to have any meaningful impact on the market. The CBN is still playing safe. I would have expected 12 per cent.

“If the CBN really wants to encourage lending to the real sector, I would have expected them to also reduce the Cash Reserve Ratio for additional liquidity to deposit money banks,’’ he said.

Similarly, Mr Frank Eneh, an economic expert, said the news of CBN reduction of MPR by 50 basis point was a welcome development,  but might  not benefit the masses.

“Personally I hold the view that borrowing from the formal sector at about 30 per cent per annum has never really been the problem as informal lending hovers around 100 per cent per annum.

“The real issue is the criteria stipulated by banks to their customers to pre-qualify to assess such loans.

`I think that FG should allow pension funds contributors to use contributed funds as collateral for getting bank loans.

“This will increase the number of Nigerians that can borrow from formal lenders to invest in small and medium businesses like farming, thereby providing the needed job creation and reducing poverty in the land,’’ he said.

Suzan O