The Bankers Committee has called on banks to continue to encourage deposit money banks, to increase the flow of credit to the real sector, in order to consolidate the economic recovery process.
The Committee in a communiqué after the Monetary Policy Committee Meeting of the Central Bank of Nigeria held last week, said a heterodox approach to reforming the market in order to strengthen the flow of credit would be appropriate at this time.
According to them, credit-constrained businesses, particularly the large corporations are encouraged to issue commercial paper to meet their credit needs and the CBN may, if need be, buy those instruments to complement the efforts of the deposit money banks.
In addition, as a way of incentivise DMBs to increase lending to the manufacturing and agriculture sectors, a dynamic cash reserves regime would be implemented, to direct cheap, long-term bank credit at 9 per cent, with a minimum tenor of seven years and two years moratorium.
The MPC deliberated on the rise in food inflation, impact of the expected liquidity from expansionary 2018 budget, and rising Federation Accounts and Allocation Committee disbursement in the second half of the year along with the build-up in pre-election year spending.
It, however, considered the potential relevance, taking into account, the expected liquidity injections from the 2018 budget; increased FAAC disbursements, and election-related spending ahead of the 2019 general elections.
The MPC added that if these crystalise, it would exacerbate inflationary and exchange rate pressures, as well as return the real interest rate into negative trajectory.
“Lowering the policy rate may not translate to an automatic reduction in market rates, due to poor transmission mechanism, owing to structural rigidities. It would also lower banks’ risk appetite and possible rise in Non-Performing Loans, which could negatively impact on the banking industry’S stability,” the Committee
said.
It, however, called on the Federal Government to accelerate the settlement of outstanding contractor debts and also encourage the Bank to ensure strict compliance with prudential guidelines.
The MPC observed that as the prices of crude oil rose in 2017 and 2018, the monthly allocation to various levels of government also increased, suggesting that the Federal Government may not be saving adequately for the future.
It cautioned that the downside risks to the growth outlook include: continuing delay in the implementation of the 2018 budget; worsening farmer-herdsmen conflicts in some parts of the country; continued non-payment of workers’ salaries and pensions in some states; rising sovereign debt, and uncertainties surrounding the direction of trade, including the external demand for Nigeria’s oil.
