Two members of the Central Bank of Nigeria Monetary Policy Committee have explained why they called for a cut in the benchmark Central Bank Monetary Policy Rate “MPR” from 13.5% to 13.25%.
The two members, Shonubi Folashodun and Mike Idia both voted for a 25 basis point rate cut.
According to Shonubi, the CBN must shift focus to “stimulating consumer spending.” He asked for “deliberate effort” to be made to “drive down interest rate.”
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“To reduce the shortfall in aggregate demand and take advantage of the current negative output gap, the focus of policy must include stimulating consumer spending. Banks must expeditiously grow consumer credit for households to take up accumulated stocks, which invariably lead to increased production and aggregate supply, thereby dousing inflationary pressure. In addition, to increase credit accessibility and uptake, deliberate effort must be made to drive down interest rate, especially considering the weakness of the transmission mechanism from the monetary policy and money market rates to deposit and lending rates. CBN’s supply of low price credit is only to complement what banks do.”
He didn’t stop there. He also asked that the government ends its “unnecessary subsidies”
Unnecessary subsidies must be discontinued, so as to provide resources for infrastructure, improved social services and reduced cost of doing business. “
Idiah also chimed supporting a move for a rate cut to help accelerate gross domestic product growth. “A reduction in the Monetary Policy Rate (MPR) would accelerate Gross Domestic Product growth, moderate inflation rate while the monetary aggregates would not exceed their provisional benchmarks for 2019.”
While members of the MPC do not always vote in line with each other. However, a dissenting voice is worth listening to. By insisting on rate cuts, the two members believe the CBN’s decision to hold rates is not helping banks provide cheap lending to key sectors of the economy.
Government borrowing also has a negative effect on private sector lending as well as increasing government borrowing cost. Government borrowing and the need to keep the exchange rate stable often cited as the main reason for sustaining high-interest rates. Asking the government to end unnecessary subsidies also indicate that members of the committee believe strongly that Federal Subsidies are eroding government revenues and denying them of the financial muscle required to stimulate economic growth.
