Thursday, 29 August 2013 22:17

Dr. Okonjo-Iweala on high interest rates

Written by Dr. Ngozi Okonjo-Iweala
•Sanusi , CBN governor(L)   •Ngozi Okonjo-Iweala, Finance Minister. •Sanusi , CBN governor(L) •Ngozi Okonjo-Iweala, Finance Minister. photo: daily independent

 

The first thing I have to say is that we have a central bank that is autonomous and it is the best practice to make these decisions. We may not be happy about it and I am bold to say we are not happy about high interest rates.  As I said before, it is tough for our entrepreneurs to function. However, I just want to say that it is very easy now to blame the central bank for withdrawing this liquidity, have you looked at our banking sector? Even before the withdrawal of this liquidity, they were already charging over 20 per cent interest rates and I think that is alarming.

 

They were already charging very high interest rates and we need to interrogate why. Structurally, what is the issue? And we are not willing to ask our banks that question. So as the minister of finance, I have been very concerned about that. Even if the monetary policy rate (MPR) is 12 per cent, inflation is coming and there is no reason why the spread. It is too high! Why are real interest rates in the Nigerian economy so high? Deposit rates are extremely low and Nigerian savers are earning as low as five per cent and three per cent.

 

But they are giving certain segments high deposit rates. So those segments that have high liquidity are made to enjoy higher deposit rates. This is also why we are looking at government’s accounts in banks. If you notice recently, we took several strong steps, because we wanted our IGR to go up. We had estimated that by second quarter we would make N58 billion from IGR sources and it was not coming. We asked the agencies to remit and they were not forthcoming. So we got permission from the president to take very strong stance, which was to make sure that they don’t open an account without the authorisation of the Accountant General of the Federation (AGF). We went and we were able to recover N34 billion. We had to go that far and we are still going to get the N58 billion that we estimated.

 

But I will be the last to say that government should interfere in monetary policy decisions. We have passed those days where you sit down and ask government to interfere in interest rates fixing and charges by banks. Those were the antiquated policies that we used to do. But by the fact that we are leaving the banks and we are running a free market system, which does not mean that you have to have this kind of behaviour. Private sector credit has gone down. I plan to have a meeting with the banking sector operators to really understand what is going on.

 

That is why we are really going to set up the development bank. I am not trying to bash them, but I am puzzled as to why. I think there is a structural problem within the banks and our banking system and their pricing. They will tell you that they have to buy power and they have to buy generators and diesel, but even when you factor all that in, in my mind, it should not be as high as it is. Then you find that some favoured people get loans at 12 per cent, whereas the ordinary person on the street will not be talked to.


Dr. Ngozi Okonjo-Iweala, the Nigeria’s Finance and the Coordinating Minister of the Economy made above comment on country’s high interest rate as she spoke to the  ThisDay newspaper editorial board.
Last modified on Thursday, 29 August 2013 22:24