A former state governor of Nigeria has urged financial authorities of the country to lower the interest rates with a view to boosting domestic production, investment and lifting the nation’s economy out of the coronavirus pandemic-induced crisis.
In a statement made available to Xinhua in Lagos, Nigeria’s economic hub on Monday, Bola Tinubu, the former governor of Lagos, said modern global economy is built on credit while prosperous nations built their success on the use of credit to generate high level domestic investment which allows for significant consumer financing.
Tinubu said high interest rates in the country for many years crippled domestic production and created a false sense of security on foreign capital inflows.
He described high interest rates, as a fundamental drag on national economic growth, second only to Nigeria’s unreliable power supply on negative impact to national prosperity.
According to figures by the central bank, the Monetary Policy Rate (MPR), which is the benchmark interest rate, has been 14 percent since July 2016 until it was reduced to 13.5 percent in March 2019.
Local media reports said banks are expected to lend at three to four percent above MPR to prime customers while the maximum lending rate is between 25 to 40 percent. And it could be higher depending on the perceived risk of the borrower.
On why the central bank should revise the high interest rates policy, Tinubu said such rates penalize domestic investment and consumer borrowing, reduce aggregate domestic supply and, to a lesser degree, aggregate domestic demand.
He stressed that the chronic gap between domestic supply and demand has been filled by bloated levels of imports which encouraged an overvalued exchange rate that the high interest rates have helped produce.
According to the former governor, in normal times, high interest rates attract significant foreign financial speculation and hot money, which provides short-term boosts to financial inflows.
But over time, as compound interest payments become due on these foreign investments, the nation loses an ever-increasing amount of money to satisfy foreign debt obligations, he added.
Lower interest rates, Tinubu said, will allow for longer-term mortgage notes, real estate would become better functioning collateral for investment borrowing not only for the housing industry, but for the general economy. Enditem