Tinubu Condemns CBN's Interest Rates Policy, Says Banking System Prevents Access To Loan

 

A two-time governor of Lagos State, Bola Tinubu, has waded into the interest rates policy of the Central Bank of Nigeria (CBN).

Tinubu said the current financial system in Nigeria opposes growth as the interest rates affect domestic investment, the private sector and job creation.

Tinubu warned that to attract investment borrowing that will grow the private sector, Nigeria “must retreat from high interest rates”.  He advised that the CBN should take advantage of the economic situation provided by COVID-19, by reviewing its high interest rates, “In a twist of irony, the economic dislocations caused by the coronavirus serve to mitigate those temporary negative consequences. If there is a time to reduce interest rates, that time is now.”

He made this known through a statement titled, “ECONOMIC POLICY: THE CASE AGAINST HIGH INTEREST RATES IN TIME OF CONTAGION. THE TIME IS NOW – CORRECT THE INTEREST RATE. In the statement seen by Allnews, Tinubu said the rate serves as a punishment on domestic investment and consumer borrowing.

“The economic fallout from the coronavirus may present the best, most pressing case for revising the CBN’s high interest rate policy. The undue rates penalise domestic investment and consumer borrowing.” Tinubu said. He argued that due to the form of financial system in the country, the banking system has been barring “most businesses and people from access to sufficient commercial and consumer credit.”

Impact of High and Low Rate

According to Tinubu, the growth of Nigeria’s economy will be dragged by the high interest rates, while lower rates will propel local investment, “High interest rates are a fundamental drag on national economic growth. Only our unreliable power supply may loom as a bigger impediment to national prosperity.”

He argued that, “Over time, high rates cause more inflation than they prevent. In the initial phase, high rates might lower inflation. Feedback loops created by the initial high rates will eventually encourage inflation.”

While for lower rates, the former governor said, “Lower rates will spur domestic investment and production. This creates both jobs and wealth. High rates serve only to suppress these vital factors. Lower rates will have some negative short-term impact on inflation and the exchange rate.”

He explained that, “Another consideration we must weigh regarding interest rates is how lowering rates along with other innovations may unlock the potential for real estate to be catalyst for economic growth at this moment.”

Impact of credit on Nigerian economy

Due to high-interest rates, small and medium businesses have often avoided seeking loans or credit facilities from the banking industry. While this has been a drag on startup growth within Nigeria, it has also prevented investment borrowings from attaining suitable levels admired by the banking industry.

While highlighting the importance of credit to businesses and the economy, Tinubu said the global economy was built on credit, “Prosperous nations have built success based on the sustained ability to use credit to generate high levels of domestic investment as well as allow for significant consumer financing.”