Slash Interest Rates, Tinubu Tells CBN

Former Lagos State Governor, Bola Tinubu, has said that the economic fallout resulting from COVID-19 may present the best opportunity for revising the Central Bank of Nigeria’s high interest rate policy.

The country is set to relax lockdown on Monday in most parts of the states including Lagos, a move to kick -start an economy which is at risk of recession.

The CBN had retained a benchmark  interest rate of 13.5 %  which in turn resulted   in  high interest rates on  commercial bank loans to investors and start- ups.

Tinubu on Sunday in a statement disclosed that the high rates might   hinder domestic investment and consumer borrowing, adding that, “High interest rates are a fundamental drag on national economic growth.”

“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.

” This reduces both aggregate domestic supply and,to a lesser degree,aggregate domestic demand. The chronic gap between domestic supply and demand has been filled by bloated levels of imports & encouraged an overvalued exchange rate that the high interests have helped produce,” he said.

According to him,  high rates may  lower inflation at the initial phase, but the rates will expose the country to  more inflation than they prevent.

He added, “While giving it disciplines against inflation. In the longer-term, all of this is untrue. High rates give us the worst of both worlds. They stifle domestic investment and incomes while pushing up inflation and exposing an ever-increasing share of our financial system to foreign manipulation and dependence.”

He said that the CBN  must retreat from high interest rates if it wanted, “investment borrowing to attain levels that actually increase private-sector growth and job creation.”

Tinubu said that “We are in a situation where the banking system is not sufficiently governed by the rational dynamics of economic maximization. Without optimal financial sector support, the productive economy has failed to grow as it should.”

He said 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.

“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.

“However, 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.”

Tinubu said that the country’s unreliable power supply  might  be the greatest challenge to national prosperity.