The Central Bank of Nigeria may have to adopt a radical approach by forcing lending rates down in order to boost the real sector of Nigeria’s economy, analysts have said.

According them, lending rates have to be lower than they are presently, preferably below double digits, to build the real sector.

They spoke in Lagos on Friday at a roundtable on “Nigerian Economy in 2013: The Issues and Expectations.”

Director-General, West African Institute for Financial and Economic Management, Prof. Akpan Ekpo, said, “For us to build the real sector, lending rates have to be in single digits.”

He explained that with most of the banks declaring huge profits, if rates are forced down, they will be able to readjust.

“I used the word ‘force’ in quotes because the CBN says it has tried to persuade the banks (to lower the rates)… When I say ‘force’ it is because most of the banks are declaring huge profits, even though some of them are also retrenching workers as they are doing that… so if you force the rates down, they will readjust,” he said.

Ekpo also faulted the decision of some of the banks to spend huge sums of money advertising abroad, saying, “I don’t see who will come and borrow money in Nigeria when the rates are lower abroad.”

While admitting that his approach was radical ‘because it was not market-determined’, he insisted that since the banking sector was oligopolistic, it is okay for the government to intervene.

“There are times (when) the government intervenes to even create competition,” he added.

The Head of Markets, Sterling Capital Markets Limited, Mr. Sewa Wusu, who said most analysts had predicted that there would be accommodative monetary policy by the CBN in 2013, explained that reducing the MPR by 100 to 200 basis points would boost the economy through a strong stock market.

“That would bring down rates and it would make the stock market attractive,” said Wusu, who spoke on the topic, “Issues in the Nigerian Capital Markets and Investment Outlook for 2013”.

Speaking on the topic, “Monetary Policy and Economic Growth: 2012 Outcomes and Prospects in 2013”, the Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, explained that lower interest rates, among other things, encouraged investment and consumer spending and increased disposable income for consumers.

He, however, warned that lower interest rates might not always boost spending, leading to a liquidity trap.

According to him, liquidity trap is a situation where further interest rate cuts fail to stimulate growth.

Rewane said declining interest rate environment was expected in 2013, noting that interest rates would continue to be market-driven.

He explained that the interest rates would be affected by the CBN’s adjustment of the MPR, downwards from the current level of 12 per cent “in view of lower inflationary threats”.

Source: Punch (written by Simon Ejembi)