The Central Bank of Nigeria (CBN) is to implement a special cash reserves requirement (CRR) regime that would encourage Deposit Money Banks to direct long term bank credits to the manufacturing and agricultural sectors of the economy.
The CBN governor, Godwin Emefiele, said this at the media briefing at the end of the Monetary Policy Committee (MPC) meeting in Abuja on Tuesday.
Under the new arrangement, he said, loans would be available at about 9 per cent, with a minimum tenor of seven years and two years moratorium to employment elastic sectors of the Nigerian economy.
“While it is difficult to encourage job creation in an environment with deficit infrastructure, the Committee believes that the Bank should continue to encourage deposit money banks (DMBs) to increase the flow of credit to the real economy to consolidate economic recovery,” he said.
DMBs that would be able to support credit constrained businesses, particularly large corporations, and attract new investments under this arrangement would be given additional incentive by the CBN.
He said details of the framework are being worked out by the Banking Supervision, Monetary Policy and Research Departments of the CBN to ensure credit constrained businesses, particularly the large corporations, were encouraged to create jobs.
Amid growing stability in the country’s inflation and foreign exchange rates, the committee also resolved to leave the monetary policy rate (MPR) and other controlling economic fundamentals unchanged.
Apart from retaining MPR, which is the controlling rate for lending by commercial banks, at 14 per cent, the cash reserve ratio (CRR), which is the minimum cash ratio at the disposal of a commercial bank at a given period, was kept at 22.5 per cent.
Liquidity ratio was retained at 30 per cent, with asymmetric corridor at +200 and -500 basis points around the MPR.
It is the 11th consecutive time the MPR has been left unchanged since 2016.
The National Bureau of Statistics (NBS) on Monday said latest inflation rate stood at about 11.23 per cent in June, a modest drop from about 11.61 per cent in the previous month. The drop represents the 17th consecutive disinflation since January 2017.
On Tuesday, the CBN governor said the intervention of the bank in the economy created an impact that has helped stabilise the exchange of the Naira to the dollar at about N360 for several months.
However, he said the country’s external reserves declined from about $47.79 billion in May to about $47.2 billion as at June 23, 2018.
He blamed the marginal decline in the level of external reserves, despite rising crude oil prices at the international oil market, on the impact of the trade normalization exercise by the United States.
According to the CBN governor, following the exercise in an attempt to stimulate their economies, interest rates in the U.S. and some advanced economies went up.
“Funds that were moved into the margin and frontier markets during the period of quantitative easing are now reversing back into their economies. By the reversal, there were more outflow than inflow of capital, which equally impacted on Nigeria,” he said.
Regardless, the CBN governor said Nigeria still performed better than others in emerging market economies, including South Africa, Guinea, Turkey, Indonesia, which experienced substantial depreciation in their currencies.
“Nigeria’s exchange rate has remained stable, because we were able to build enough buffer to support the Naira. That is why the exchange rate has remained stable at N360 to the dollar for several months,” he said.
The MPC frowned at government’s display of lack of consciousness to build fiscal buffers against any possible oil shortages in the future.
The committee said the rise in the distribution of revenue allocations at the Federation Accounts Allocation Committee (FAAC) amid rising crude oil prices in the international oil market in recent times portends a grave danger for the economy.
The macroeconomic forecast, the CBN governor said, showed positive economic growth in the second half of the year based on the implementation of the 2018 budget, sustained stability in the foreign exchange market, increased in crude oil production and crude oil prices.
It however cautioned against the downsides to the growth outlook as a result the continued delay in the implementation of the 2018 budget and worsening farmers and herdsmen conflict in some parts of the country.
Other factors include, continuous non-payment of workers’ salaries and pensions in some states, rising sovereign debts and uncertainty surrounding government trade policies, including the external demand of the country’s crude oil.