By Ifeanyi Onuba

Hopes of a decrease in lending rates to businesses by banks were dashed on Monday as the Central Bank of Nigeria again raised the benchmark lending rate by 50 basis points to 9.25 per cent.

The decision was announced by the apex bank Governor, Mr. Lamido Sanusi, shortly after a two- day Monetary Policy Committee meeting in Abuja.

Present at the meeting were the Governor of the CBN, Mr. Lamido Sanusi; the Deputy Governor, Financial Systems Stability, Dr. Kingsley Moghalu; the Deputy Governor, Economic Policy, Mrs. Sarah Alade; the Deputy Governor, Operations, Mr. Tunde Lemo and the Deputy Governor, Corporate Services, Mr. Suleiman Barau, among others.

The MPR is the anchor rate at which the CBN in exercising its statutory function as the lender of last resort lends to Deposit Money Banks.

This is the fifth time the apex bank would be raising the benchmark rate this year. It had on January 25 raised the MPR by 25 basis points from 6.25 per cent to 6.50 per cent.

On March 22, in a bid to reduce public spending ahead of the April general elections, it also increased the anchor lending rate by 200 basis points from 5.5 per cent to 7.5 per cent.

In the same vein, it, on May 24 and July 26, raised the MPR by 50 and 75 basis points to eight per cent and 8.75 per cent respectively.

Explaining the voting pattern, Sanusi said that eight of the 12-man committee voted for a tightening, while three voted that the MPR be retained at 8.75 per cent.

Continuing, he said that of the eight that voted for tightening, seven okayed an increase of 50 basis from 8.75 per cent to 9.25 per cents while one member voted for a 100 basis points increase.

For the symmetric corridor, Sanusi added that members voted unanimously for it to be retained at +/-200 basis points around the MPR while the Cash Reserve ratio was also retained at the current rate of four per cent.

The CBN boss also said that the Federal Government’s decision to reduce its recurrent expenditure by one per cent annually was commendable.

He, however, added that the move was not enough to address the uncertainties posed by inflationary risk in the short to medium term.

Justifying the increase, Sanusi said the committee considered the continuing expansionary fiscal stance and high components of recurrent expenditure.

Also, the liquidity surge expected from the interventions of the Asset Management Corporation of Nigeria following the conclusion of the recapitalisation of the rescued banks formed a critical consideration of the decision.

Other considerations are the sharp rise in the month-on-month headline inflation rate despite falling headline inflation rate on year-on-year basis, the need to have positive real interest rates and persistent demand pressure in the foreign exchange market.

He said, “The committee considered that given the difficult and uncertain international environment, it is important to ensure that the current trends in growth are sustained and price stability is maintained.

“The fiscal stance continues to be expansionary. The announcement of a target of one per cent annual reduction in government recurrent spending when viewed in the context of the anticipated injections associated with the implementation of the new national minimum wage suggests that the fiscal retrenchment is likely to be drawn-out.

“In addition, there is the weight of structural factors such as the announced hikes in electricity tariffs and expected removal of petroleum subsidy.”

“However, having considered the arguments for and against tightening, the committee voted for maintaining the stance of tightening in the short term.

“The committee emphasised that for monetary policy to be effective, it would need to be complemented by other policies, both structural and fiscal. Monetary policy can only address the monetary aspects of inflation while fostering growth and financial stability.”

On the country’s external reserves position, the apex bank boss put the balance as at September 15 at $34.85bn.

This, he noted, represented an increase of 3.32 per cent over the $33.73bn attained in July 2011.

He attributed the increase to inflows from royalties into the federation account owing to upward trend in international oil prices as well as the stable oil production in the Niger Delta.

Also, he added that Foreign Direct Investment rose over the last eight months from $4.60bn to $5.66bn.

Source: Punch