Managing Director of Coleman Technical Industries Limited, George Onafowokan, has described the Central Bank of Nigeria's recent adjustment in the Monetary Policy Rate as a reset aimed at aligning monetary policy with prevailing market realities. The new rate is expected to reflect across the economy within the next two to three months. This move comes as commercial lenders have been offering loans at about 22 to 23 per cent, significantly lower than the previous 26.5 per cent rate.
According to Onafowokan, the gap between the CBN's policy rate and actual lending rates had become misaligned. The recapitalisation of Nigerian banks significantly increased the equity and lending capacity of financial institutions. Banks that previously had capital bases of about N50 billion were required to increase them to N200 billion, while institutions with N200 billion were required to scale up to N500 billion.
The additional capital increased liquidity in the financial system, prompting banks to compete for lending opportunities and pushing market lending rates below the CBN's previous policy rate. Onafowokan explained that the market found its own level based on the amount of liquidity and the new money in equity in the market. As a result, banks repositioned themselves and started lending at lower rates.
Onafowokan noted that the impact of the rate adjustment would not be immediate but expressed confidence that it would begin to reflect across the economy within the next two to three months. He also mentioned that lower interest rates could affect treasury bill yields and influence the decisions of foreign portfolio investors. Nigeria remains attractive to international investors due to the returns available in the country.
Onafowokan called for a reduction in the lending rate of the Bank of Industry, saying the institution's current rate was becoming too close to commercial banking rates. He urged the CBN, Ministry of Finance, and the Federal Government to support the Bank of Industry in returning to a lower lending rate, which would better reflect its development-finance mandate.
The Nigerian economy is showing positive signs, with economic growth of more than four per cent, declining inflation, and relative stability in the naira. Onafowokan maintained that the naira had remained resilient and advised Nigerians to have confidence in the currency. Those who retained their naira holdings have benefited from its recent performance.
Onafowokan expressed optimism about the economy, stating that it is in the right direction. He emphasized that the recent rate adjustment is a step in the right direction, aligning monetary policy with market realities. The adjustment is expected to have a positive impact on the economy in the coming months.
Key points
- The CBN's rate cut aims to align monetary policy with prevailing market realities.
- The recapitalisation of Nigerian banks increased liquidity in the financial system, prompting banks to compete for lending opportunities.
- The Nigerian economy is showing positive signs, with economic growth, declining inflation, and relative stability in the naira.
