By Ossom Raphael
The Nigerian Central Bank Governor Godwin Emefiele has censured Deposit Money Banks for not lending to the real sector of the economy.
The Apex bank also retained the Monetary Policy Rate, MPR, at 12 per cent with a corridor of +/- 200 basis points around the midpoint.
The Apex bank governor while addressing newsmen shortly after the 97th Monetary Policy Committee (MPC) meeting in Abuja, lamented that inspite of the huge liquidity in the financial sector, banks apathy for lending had increased.
Emefiele said given their apathy to lending, banks could be inclined more to placing these new funds in the Standing Deposit Facility (SDF) or use it to increase pressure on the exchange rate.
He disclosed that the excess reserves of the banking sector to be over N300bn.
“What the banks are doing is either placing these monies in treasury bills or even investing them at the CBN window.
“The committee further expressed concern about high banking system liquidity and its potential effects on inflation and the exchange rate.
“The committee was, however, concerned that banks were holding large excess reserves averaging over N300bn even when there were ample opportunities for productive and profitable lending to the real sector of the economy.
“The concern was further strengthened by the reality of injecting an additional N866bn into the system through the redemption of maturing AMCON bonds in October.
“Given the apathy to lending, banks may be inclined more to placing these new funds in the SDF or use it to increase pressure on the exchange rate.
“The committee advised the Bank (CBN) to explore ways of encouraging banks to lend such excess reserves to the real sector.”
The CBN governor expressed the committee’s satisfaction with the relative stability in the economy, while noting the risks that lies ahead.
The key risks include, the possibility of capital reversals as the Fed’s Quantitative Easing in the United States finally ends in October, amidst dwindling oil output and declining oil prices, domestic security challenges and upward trending headline inflation, he noted.
He added that, In view of the risks, the policy challenges would include sustaining the stability of the naira exchange rate, managing the vulnerability to capital flow reversal, building fiscal buffers to insure against global shocks, managing inflation and exchange rate expectations and safeguarding the financial system stability as well as a buildup in election related spending.
The governor also explained that while the committee welcomed the efforts by government to address some of the constraints and risks to economic activity like the insurgency in the North-East and the outbreak Ebola Virus Disease, it noted that as progress is made in these areas and in respect of other constraints like power and improving SME financing, the outlook for growth appears bright.
according to the apex bank governor, the committee was split between retaining the current stance of monetary policy and further tightening.