THE governor of the Central Bank of Nigeria (CBN), Yemi Cardoso has blamed the country’s rising high interest rates on the excessive N27 trillion loan facility issued to the Federal Government by the apex bank.
Cardoso disclosed this on Thursday, July 11, at the CEO forum in Lagos monitored by our correspondent, raising further concerns that the Nigerian in the streets is feeling the pains of that decision.
The economy is currently underperforming, and analysts have linked it to the high interest rate currently pegged at 26.25 per cent by the CBN as a result of excessive lending to the federal government by the apex bank during former President Muhammadu Buhari’s tenure.
The interest rate at 26.25 per cent and inflation at 33.95 per cent have put pressure on the lending capacity of commercial banks which has squeezed lending to the manufacturing sector and businesses.
Cardoso, said as a result of an unavoidable interest rate hike, Nigeria is currently shouldering the excesses of N27 trillion in ways and means as well as N10 trillion in intervention programmes which have led to the recent spike in inflation.
He said the apex bank is aware of the impacts of these loan facilities on businesses and the economy and is working to avert future occurrences.
The apex bank governor explained that high interest rates are driven by increased money supply and subsequent inflation, which forces the Monetary Policy Committee (MPC) to maintain elevated rates.
He emphasised that while he is not responsible for these decisions pointing out that the MPC makes such choices, Nigerians must understand that the surge in Ways and Means and intervention programs has negative consequences.
He further clarified that the MPC’s primary mandate is to reduce inflation, and its decisions are based on data trends rather than emotions.
Cardoso, clarified that the Interest rate is not set by the CBN governor, but by the members of the monetary policy committee.
“The MPC has made it very clear that for them the major issue is taming inflation and has also made it very clear that they will do whatever is necessary to tame inflation.
“Sadly, we have a situation where a lot of money supply went into the system. We all saw ways and means soared to N27 trillion. We saw interventions of N10.5 trillion. It has its consequences. In large respect, that is what we are paying for now,” Cardoso added.
Commenting further, he noted that the high interest rate is only temporal until inflation moderates.
He added that the hawkish rate is based on timing, stressing that without such a high rate the naira would have tumbled against the dollar.
Cardoso further clarified that inflation moderation will see the rate decline.
On whether the high rate is working, the governor said month-to-month inflation has declined by 50 per cent, adding that it is projected to further reduce shortly.
“The MPC is not oblivious to the fact that ultimately, we do want growth. If these hikes were not done at the time they were done, the naira to the dollar was almost tipping over. This helps to stabilise it. Secondly, it is a timing issue. It’s not something that will remain with us forever.
“Fiscal issues being moderated and the ability to suck up all the excess liquidity in the system and be able to balance things out over some time. That’s the important thing for the MPC as far as I can see.
“Between February and May of this year, the month-on-month rate of inflation has gone down 50%. I sense that this is not something that is a one-size-fits-all. I think in a not-too-distant future, the interest rate will come down,” he added.
The ICIR has earlier reported that the Senate has commenced a probe into the CBN’s excessive lending to the Federal Government which many analysts described as a failure of oversight and poor scrutiny before approval of such lending to the federal government by the legislature.
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.