Declining Credit to Private Sector Tops MPC Agenda Today


As members of the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) commence their two-day meeting in Abuja today, the sustained decline in the level of credit to private sector will be a major concern to the committee.

Latest figures by the CBN showed that credit to the private sector fell once more in May 2018, to N22.207 trillion year-on-year as against the N22.254 trillion it was in April. The CPS had fallen in March.

CBN report had shown that industry gross credit recorded a 3.63 per cent decrease in April 2018, the lowest since January 2017.

At the last MPC meeting in May, the committee members expressed concern that despite the decline in the level of non-performing loans (NPLs) in the industry, commercial banks remained apathetic about lending to the private sector.

The expectation that with economic recession over in 2017 and with recovery signs, credit to the private sector would pick up in the early parts of 2018 is yet to happen.

But speaking in a chat with THISDAY on the development yesterday, the chief executive of the Financial Derivatives Company Limited, Mr. Bismarck Rewane, explained that even if the MPC decides to bring down interest rate at the end of the meeting tomorrow, banks may still not lend because of their risk aversion, saying the banks are now much more cautious.

At its meeting in May 2018, the MPC maintained the Monetary Policy Rate (MPR) at 14 per cent, with the asymmetric corridor at +200 and -500 basis points around the MPR; it retained the Cash Reserve Ratio (CRR) and Liquidity Ratio (LR) at 22.50 per cent and 30 per cent respectively.

Although National Bureau of Statistics was yet to release the consumer price index for June as well as second quarter Gross Domestic Product figures, the naira has remained stable, trading around N360 to a dollar. Also, the country’s external reserves have remained at about $48 billion.

Commenting on the likely outcome of the MPC meeting, Rewane said, “Even though we don’t have last month’s inflation figure yet, everything shows that inflation is beginning to taper and any change in monetary policy at this time, eight months to an election, could be misconstrued as politically-motivated. The time to have lowered interest rate was at the last two meetings, which wasn’t done.

“So, anything now could be belated and might have negative consequence. So, there is every likelihood that they would maintain the status quo.”

Considering possible policy options open to the MPC, analysts at FSDH Merchant Bank Limited, held the view that members may vote to retain rates at the current levels.

“However, FSDH believes if the MPC members’ fear about the impact of fiscal injections and rising rate in the international market on domestic price stability does not materialise; policy easing may be required very soon. “Notwithstanding the hold decision, FSDH Research expects the yields on FGN Bonds to rise further from the current levels. The borrowing needs of the FGN and the rising yields in the international market will be the major drivers,” they added.

Also, analysts at Afrinvest Securities Limited noted that as the MPC must keep a delicate balance between growth and price stability, the ccommittee might maintain status quo on all policy rates in order to avoid upsetting the current economic momentum.

“Our position is on a balance of factors underscored by careful analysis of sustained positive conditions in global commodity markets alongside emerging market risks and continued disinflation amid steady but weak growth momentum,” they stated.

The Economic Intelligent Unit at Access Bank Plc also anticipated that the MPC would retain the MPR at 14 per cent. They hinged their expectation on the anticipated expansionary fiscal spending following the signing of the 2018 budget.

“Furthermore, the ongoing policy normalisation by major central banks, namely the US Fed and the European Central Bank may dampen the appetite for a rate cut as the apex bank seeks to preserve the attractiveness of Nigerian financial assets and stem the reversal of capital flows presently experienced in the financial markets,” it added.



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