The Central Bank of Nigeria concluded its Monetary Policy
Meeting on Wednesday leaving Monetary Policy Rates at 14% for the second year
running. The central bank’s governor, Godwin Emefiele announced that it was
leaving MPR at 14%, CRR at 22.5% Liquidity Ratio at 30%.
In terms of the vote split the 7 members voted to keep rates
the same and 2 members, however, voted to increase the MPR by 50 basis points,
while one member voted to increase the MPR by 25 basis points.
The decision to keep rates the same was not unexpected as
most analysts surveyed by Nairametrics predicted that the CBN will yet again
keep things the same as it has since July 2018. What was however different this
time was the CBN’s latest initiative at artificially bringing down interest
rates.
In a surprise move the CBN Governor Godwin Emefiele
encouraged large corporations to “issue commercial paper to meet their credit
needs and the Central Bank of Nigeria may, if need be, buy those instruments to
complement the efforts of the DMBs.”
This decision suggests that the Central Bank is willing to
start buying corporate debts in an effort to inject liquidity in the market and
put cash on the balance sheet of corporates. The Governor went further in its
press briefing indicating that they intend to buy these debts at lower rates.
Just recently, Dangote Group, one of Nigeria’s largest
corporate organisations listed its N50 billion Commercial Paper at 13.21%, one
of the lowest ever by a private enterprise. Sterling Bank, UACN and Nigeria
Breweries have also issued commercial papers this year at yields of about 16%,
14%, and 16% respectively.
Some Economist that we spoke to at Nairametrics suggest the
CBN buying private sector debt is basically quantitative easing (QE). QE is an
economic policy used during the world economic crisis and involves the CBN
indirectly placing money on the balance sheet of banks to on-lend to the
private sector via financial instruments. CBN lends to banks at single digits
and then the money is lent by the banks via instruments like commercial papers
to the private sector at rates lower than 10%.
The Central Bank Governor also went further. In the policy
statement they indicated that “as a way of incentivise deposit money banks to
increase lending to the manufacturing and agriculture sectors, a differentiated
dynamic cash reserves requirement (CRR)regime would be implemented, to direct
cheap long-term bank credit at 9 per cent, with a minimum tenor of seven (7)
years and two (2) years moratorium to employment elastic sectors of the
Nigerian economy.”
This basically means the CBN will release more of the cash
statutorily held on behalf of banks to them provided they are willing to lend
the money to select sectors at an interest rate of 9% and a tenor of 7 years.
Analysts speaking to by Nairametrics suggest this might be a
hard sell especially of treasury bills rates and long-term government bond
yields continue to be above double digits. Banks will rather keep the cash with
the CBN at a risk-free rate than lend it at 9% to businesses in an economy that
is susceptible to price shocks and external risks.
