Governor of the Central Bank of Nigeria, Mallam Lamido Sanusi has given reasons why the bank has not reduced its interest rate for a long period of time.

The CBN governor, who spoke at the fifth anniversary of Women in Successful Careers, said reducing the interest rate would lead to a corresponding increase in inflation rate.

He said, “I agree that the interest rate is high. The interest rate cannot be lower than this. This has been subjected to public argument. Reducing interest rate is the easiest thing for any central bank to do. If the central bank prints enough money today, the interest rate will come down but what will the rate of inflation be? What will the rate of exchange be?

“Where would we have been if the naira had become N190 to a dollar over night? Now, if you are to exchange the dollar, you get it for N158 and N159 in the banking sector. The reason is because there was so much cash to sell to those who are not doing legitimate transaction. If you are a politician and you want to buy the dollar i am not going to sell the dollar cheap to you because this is genuine business.

“To import goods and services it still have to go through the normal interbank rate. We have inflation today 7.6 per cent when i became the governor of central bank, it was 15.8 percent.”

He explained that keeping the inflation at low rate was for the growth of Small Scale Enterprises, adding that high inflation would have negative impact on access to fund.

He said, “There are hundreds of men and women there who do not know their way to the bank. Now for these people, inflation affects their lives. You just need to go to the market on a small scale salary and find out that they cannot feed their family. I have to keep the inflation rate down for those people, I have to reduce the inflation rate for them to pay the school fees of their children. I have to keep the exchange rate for these people. They should not pay school fee today at N160 per dollar and next term or session have to pay N180.

“I have to hold the inflation of this country so that if there is an all rise stock, the country can survive. The high interest rate is the price you pay for this. To talk about the cost of interest it is a function of finance, it is not an argument in economics. Economics will explain what the alternatives are. Like I said, the low interest rate is not a problem to me. I told politicians and my boss; ?you want interest rate reduced, but where do you want inflation; at 15 per cent and the exchange rate of Naira should increase to 180 or 190?”

He proffered that it was important to diversify the various sectors in the economy for even development.

Sanusi said, “The banking industry I have stayed for four years is for monopoly. If you want finance in this country, you basic capital fund, the capital market is not giving it to you, you have got 25 million dollar in the pension money that is not going to infrastructural development. Everybody from the power plant to construction company to mortgage companies will go to the bank so if you have a monopoly you have a monopoly crisis.

“You have to create competition for the bank and the way to create that competition is to create a proper structure for financial market where the pension funds are players, where the financial companies, insurance funds, venture capital are players, where the PE funds are players. The structure will give where to go for project capital, finance and others. Right now, we don?t have infrastructure.”


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