Recently, the media was awash with reports that the Central Bank of
It is instructive to note that the over N535bn loan profile of the CBN over a period of six weeks may not be used to improve infrastructure or stimulate the industrial sector because such application of funds would re- inject more cash into the system and increase the pressure and consequences of the already surplus cash in the money market. At least that is what the monetary authorities want Nigerians to believe. In other words, the CBN borrowing with the treasury bills is aimed at taming the monstrous ghost of excess liquidity in the economy, which obviously is generated by the apex bank's monetary policy.
To restrain the inflationary trend caused by reducing the excess liquidity which is as a result of huge monthly naira allocation to the three tiers of government, the apex bank borrows back and warehouses some of the naira surplus as idle cash in banks vaults at high interest rates. Therefore, the CBN would ultimately offer to borrow and pay double digits interest rates on government's treasury bills so as to encourage the commercial banks to part with some of the excess cash in their custody. Obviously, the commercial banks do not require any prompting from the apex bank as it is unusual to earn such high interest rate offered by CBN for what monetary experts believe are sovereign free risk investments.
It is therefore not surprising to us that the commercial banks would continue to declare huge profits while the real sector is denied growth through high interest offered by the banks. The consequences of this bad monetary policy are the high rate of unemployment and poor social welfare.
We agree with the Chairman of the
Indeed, this Newspaper wonders why government's risk -free loans should attract interest rate as high as 15 percent when similar facilities in other developed economies of the world cost less than 4 percent. The
Hispanic #1 Breaking News for Entrepreneurs, Professionals and Small Business Owners - HispanicBusiness.com
OCTOBER 30, 2014
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