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‘FG’s reduced borrowing’ll crash interest rate’

‘FG’s reduced borrowing’ll crash interest rate’

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Omodele Adigun

As clamour for low interest rate continues unabated, Nigerians have been assured that the Federal Government‘s plan to reduce borrowings would crash the rates.

According to the Director, Other Finance Institutions Supervision Department (OFISD) of the Central Bank of Nigeria (CBN), Mrs. Tokunbo Martins, the Federal Government is making a deliberate effort to reduce borrowing in order not to make the interest rate higher for borrowers locally.

Mrs. Martins, who stated this in Lagos recently, also explained that the apex bank is leaving no stone unturned to bring down interest rate, which informed its decision to introduce intervention schemes in some sectors and ensure lending is done at single digit interest rate.

Her words: “The CBN is doing everything possible to bring down interest rate. If you look at the yield of the 20-year FGN bond, it has come down. There was a time it was almost 16-20 per cent. Currently, it was about 13 per cent. Even the yield on treasury bills is coming down. And the reason it is coming down is because the Federal Government is making a deliberate effort to reduce borrowing internally and borrowing internationally for some reasons.

“One, they don’t want to crowd out borrowers here because it is cheaper for them to borrow abroad. Crowding out borrowers here makes the interest rate higher for borrowers locally. I think that is one step in the right direction.

“Inflation is also coming down. Inflation is one of the reasons the risk-free rate is high. When inflation is high, like 16 per cent, the MPC could not raise the MPR  that high. Ideally, it should be that high. But they couldn’t because they have to look at the other areas of the economy. But now, inflation is coming down.  It has come down for 14 consecutive months. Currently, it is at 14.33 per cent. Previously, it was 15.13 per cent.

“With that, I am sure those interest rates would come down gradually. I can’t promise that it would come down immediately because the CBN knows that interest rate can’t be crashed that way. CBN has some interventions in some sectors  where it ensures that lending is done at single digit interest rate. These are SMEs, agriculture, power sector of the economy, which CBN deems necessary to support.”

A Lagos-based investment firm, Cordros Capital, recently explained that treasury bill yields contracted by 38 basis points on average, as market players reacted to the declining inflation rate and reduced supply at the primary auction.

“Trading in the bond market was mixed, albeit, with a bearish tilt, as strain in system liquidity kept a tight lid on demand amid the lower-than-expected fall in February inflation rate to 14.33 per cent. Consequently, average yield recorded one basis point month-on-month expansion to close at 13.69 per cent. Our theme on the bond market continues to favour downward trending yields as continued signals of monetary easing, the Federal Government’s new debt management strategy, and moderating inflation rate (we estimate 13.52 per cent for March) will remain key drivers of yield movement in the near-to-medium term,” the company states in an e-mail message to investors.

The post ‘FG’s reduced borrowing’ll crash interest rate’ appeared first on The Sun News.

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