Last week, the Central Bank of Nigeria’s Monetary Policy Committee agreed to retain the Monetary Policy Rate at 12 per cent, but decided to increase commercial banks’ Cash Reserve Ratio from 8 to 12 per cent. In the aftermath of this decision, the CBN accused the Money Deposit Banks of not lending to the real sector. The CBN governor, Lamido Sanusi, decried the reality that “rather than lend to the real economy, the banks have continued to take advantage of the high yields of government securities to direct credit away from the core private sector”.
Not only that, the apex bank also belatedly recognised that the excessive liquidity of the banks had provided opportunity for speculative activities in the forex market. Sanusi finally concluded that the product of banks’ anti-economy activities is the sad reality of aggregate domestic credit declining by over five per cent between June 2011 and June 2012.
Regular readers of this column may be forgiven if they imagined that the author of this column was also Sanusi’s speechwriter, because, the CBN Governor’s observations are in full consonance with our tireless advocacy over the years! To that extent, therefore, I feel vindicated that, finally, the authorities have now acknowledged that this writer has not deliberately set out to criticise CBN policies without any just cause!
Indeed, while we have ceaselessly maintained that the CBN has in its portfolio the antidote to the problems of bank lending to the real sector and fund diversion to speculative foreign exchange transactions, Sanusi, unfortunately, in his media address lamented that the apex bank was handicapped as it could not force the commercial banks to embrace the real sector.
It is curious, however, that in spite of banks’ aversion to real sector lending, and their evident affinity for antisocial speculative forex activities over the years, the CBN, nonetheless, continues to featherbed the money deposit banks at the expense of our economic and social welfare. We recall the humongous bailout sums, which the CBN made available to save the banks and position them to support the real sector. As per Sanusi’s admission, the additional public funds of over N2tn injected into the banks through the Assets Management Corporation of Nigeria have also done little or nothing to boost lending to the real sector. The money has also not restrained the banks from speculative forex trading.
Consequently, the ultimate impact of the CBN’s and AMCON’s injections has been the instigation of an inflationary spiral, because these funds, which are literally cash creations by the apex bank, inevitably increase money supply and engender a cash surfeit in the system. In other words, while the directors of the money deposit banks go home with a smile on their faces every day, millions of ordinary Nigerians go home with a huge frown because of the unfettered inflationary rate and economic deprivations ignominiously nurtured by the CBN.
Undoubtedly, the over 30-year-old unyielding scourge of excess liquidity (too much money) could have been more favourably handled. Indeed, we have argued elsewhere that apart from crowding out the real sector from available credit in the market, the CBN’s choice instrument for mopping up excess liquidity has favoured the banks rather than the welfare of Nigerians; the self-inflicted outrageously high interest rates payable on government’s ‘risk free borrowings’ with treasury bills and bonds, also oppressively increase our nation’s debt burden.
It is welcome, therefore, that Sanusi at last decided to control excess liquidity and its attendant consequences by raising the CRR from eight to 12 per cent. However, the CBN’s issue of almost N150bn worth of high yield treasury bills barely a week after increasing the CRR is probably an indication that the demon of excess liquidity still remains uncaged.
Thus, if debt accumulation and high cost of borrowing were serious concerns to the CBN, market liquidity could have been more cheaply managed by a much higher increase in the CRR. Furthermore, it could also be made mandatory that all government Ministries, Departments and Agencies including parastatals like the Nigerian National Petroleum Corporation should appropriately keep their accounts with the CBN rather than the current economic disenabling practice, where monthly allocations to the tiers of government instigate excessive liquidity by creating extensive credit leverage for the banks.
Under this arrangement, the banks will be the major beneficiaries of the over N500bn set aside for debt service in the 2012 budget. In other words, it is government that actually crowds out the real sector, not the banks!
Not yet done, the CBN, in seeming collusion with the banks, instituted the cash-less policy in the expressed hope that the operational cost of running each bank would fall by at least a third. It had earlier noted that cash handling cost was responsible for over a third of the infrastructural and labour cost in bank operations; therefore, ‘cash-less’ banking should reduce bank-operating cost accordingly, and thereby encourage banks to lend to the real sector at between five and seven per cent interest rate. Regrettably, once again, there is no indication that the banks are better primed or inclined to either lend to the real sector or to curb their appetite for speculative forex trading.
Worse still, as core inflation rate (which includes price index of food items) is now on the inflammatory threshold of around 15 per cent, the CBN is also, evidently, in a dilemma concerning its core mandate for price stability!
From the foregoing, it will be clear that the CBN cannot sincerely claim to be helpless in controlling excess liquidity or creating a framework that would drive lending to the real sector at single digit interest rates. Similarly, it cannot also claim inability to minimise market opportunities for speculative forex activities by the banks.
Undoubtedly, Sanusi appears totally confused, and has in fact often wrongly castigated public spending as the obstruction to a more benevolent monetary framework. Incidentally, however, increased public spending is the universal antidote to weakening consumer demand and unemployment! Unfortunately, Sanusi refuses to accept the truth that the poison in our current monetary model is the CBN’s monthly substitution of naira allocations for dollar-derived revenue. This unconstitutional payment framework surely instigates the eternal curse of excess liquidity and also forcibly drives high interest rates and fuel prices, and inadvertently provides an unending source of funds for speculative forex trading while increasing expensive and extravagant debt accumulation.
Until Sanusi accepts this reality, the CBN’s shenanigans may be akin to the ostrich with its head stuck in the sand in the hope that it would become unnoticed. It would be a mark of gross insincerity for the CBN to follow suit in spite of the deepening poverty nationwide.
•Boyo, an economist, wrote in from Abel Sell Nig Ltd, Lagos, via lesleba@lesleba.com
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