The banking industry’s maximum lending rate remained high at 30.56 percent in February 2019, whereas the yawning gap between maximum lending rate and consolidated deposit rate was as wide as 26.23 percent.
“This picture is not growth-friendly”, said, Isa-Dutse, Mahmoud, member of the Monetary Policy Committee (MPC) in his personal statement, adding that reviewing the monetary policy rate in a downward direction seems to be the right way to go in the absence of direct controls.
The Central Bank of Nigeria (CBN), in March, surprised the Nigerian analysts, economists and investors with a 50 basis point 0.5 percent reduction in its benchmark interest rate to 13.5 percent from 14 percent since July 2016.
The regulator however, retained asymmetric corridor around the MPR at +2%/-5%; Cash Reserve Requirement (CRR) at 22.5 percent and Liquidity Ratio at 30 percent.
Nigeria’s money supply was seen to be constraining the growth momentum in the economy as Godwin Emefiele, governor of (CBN) opined that the current performance of monetary aggregates have been unsatisfactory.
According to Emefiele, both the broad and narrow money aggregates, M2 and M1 performed below their benchmark in February 2019. Specifically, M2 contracted by 1.98 per cent over the preceding December 2018, and about 14.47 percentage points below the 2019 growth bench mark of 12.99 per cent.
Similarly, M1 declined by 6.16 per cent compared with the provisional growth bench mark of 17.08 per cent. Credit to private sector grew by 6.41 per cent, year to date, compared to the provisional bench mark of 9.41 per cent. Similarly, aggregate credit to the domestic economy grew by 10.64 per cent as against its provisional bench mark of 11.82 per cent.
Other members of the Monetary Policy Committee also corroborated with the CBN governor on this. Isa-Dutse, Mahmoud, MPC member said, “it is noteworthy that most of the key monetary aggregates underperformed relative to the provisional benchmarks”.
In February 2019, M3 grew by 4.31 percent -well below the benchmark of 14.47 percent, while M2 and Net Foreign Assets (NFA) contracted by 1.98 percent and 7.47 percent relative to benchmark figures of 12.99 percent and 18.66 percent, respectively. These statistics indicate that monetary policy has been quite restrictive and that money supply may be constraining the growth momentum in the economy. Thus, there is a need to review the current monetary policy stance to promote growth.
In his personal statement, Obadan, Mike Idiah, another MPC member, said developments in monetary aggregates suggest scope to expand money supply to drive economic growth. Broad money supply (M2) declined by 1.98 percent in February 2019 below the level at end-December, 2018. The annualized growth of M2 stood at -11.91 percent compared to the 2019 provisional benchmark of 12.99 percent. On the other hand, annualized growth of broad money aggregate (M3) at 25.88 percent was, however, above the 2019 provisional benchmark of 14.47 percent.
Although M3 grew largely because of increase in CBN bills, the M2 component contracted in January and February 2019, respectively, reflecting tight monetary policy stance of the Bank. “Overall, money supply still remains weak to drive the growth momentum in the economy”, he said.
Shonubi, Folashodun, deputy governor and also a member of the MPC said in his personal statement that Growth in the monetary aggregates were generally moderate and within the benchmark but remained largely disconnected from real economic activities, especially with the growth in credit to the private sector.