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Experts Back Finance Minister’s Call For Interest Rate Cut
Experts in the manufacturing sector have expressed support for the Minister of Finance, Kemi Adeosun’s call on the Central Bank of Nigeria, CBN, to lower interest rate so that government can borrow domestically to boost the economy without increasing debt servicing costs.
President of the Manufacturers Association of Nigeria, MAN, Frank Jacobs, said that a cut in interest rate would be “the best thing to happen to the economy” particularly the manufacturing sector.
“It is what we have been agitating for since and if the interest rate is brought down, it will be the best decision in the current economic dispensation,” Jacobs said.The manufacturing industry operators said it would be the best thing to happen to the country’s economy given the present challenges.
Adeosun in an interview had said: “We need lower interest rates, because when we are borrowing and interest rates go up, it increases our cost of debt service and it reduces the amount of money that is available to spend on capital projects.
“The attempt was to manage inflation and the trade-off for the economy right now is: what is a bigger problem? Is it growth or inflation?
“For me it is growth. I would rather seek growth. We can manage inflation. I think for us, at the moment in the Nigerian economy, growth is the most important thing,” she said.
The Finance minister also said that the country had received commitments to its planned $1bn Eurobond from international investors, which it aims to issue before the end of the year, but insisted that pricing would be key.
“We already have quite strong indications and indeed we had some commitments. Even though we weren’t doing a deal, we already have commitments to our bond offer; so, we are very confident that it is just a question of pricing,” Adeosun said.
At a meeting of business leaders in Abuja on Monday, the minister noted that regulators had approved plans to enable the investment of as much as $20bn of pension funds in the development of infrastructure.
According to her, the Securities and Exchange Commission and the National Pension Commission have approved “a new instrument that will allow pension funds to invest in infrastructure bonds.”
“That’s what will drive, for example, our social housing and our roads programme outside the budget,” she added.
Also, the minister of budget and national planning, Udoma Udo-Udoma, hinted that government is also planning an “immediate large injection of funds” through asset sales, advance payments for licence renewals and infrastructure concessions.
The minister also said that government had almost finished preparing a bill for the National Assembly to approve emergency powers for President Muhammadu Buhari to improve the business climate.
Renowned economist, Bismarck Rewane, in a telephone interview with correspondents of the PUNCH Newspaper, also supported the call for a reduction in interest rates.
He said: “There is no other way but to reduce the interest rate.
“During recession, Britain brought down interest rate; and in the US during the recession, what did they do? They brought down interest rate as well. So, we need to bring down the interest rate.”
Another expert, Akpan Ekpo, an academic professor, also described the move as “the only way to fast-track the recovery of the economy.”
“The interest rate must be reduced to close to single digit, if not single digit, in order to stimulate the real sector. Now, it is an average of 25 per cent and that is too high.
“The real sector is dead now; when you are in a recession and the real sector is dead, then the recession will last for long.”
The Monetary Policy Committee of the CBN had at the end of its meeting in July raised the MPR to 14 per cent from 12 per cent.
The committee is currently holding a meeting at the end of which it is expected to announce its next rate decision.
Some economists are predicting that it will keep the key interest rate at 14 per cent, while others say a cut is inevitable.