Thread: First Bank Plc
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Old 23rd December 2012, 12:53 PM
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Default Re: First Bank Plc

"........To the extent that we are still not able to bring inflation rate down, the interest rate regime of the CBN today is still supportive and it is still in order. As a matter of fact, textbook economics would tell you that your interest rate should be above your inflation rate. Today, if the CBN decides to take a factual decision based on available statistics, what they would do is not to bring down interest rate, but to take it up. However, I believe that what should happen is for us to wait and watch the sustainability of the inflation numbers as they come forward. I believe that the numbers would slightly go up higher than it is today, maybe in the first quarter and let’s see what happens in the second quarter. If that pattern emerges and becomes a trend that we can say has come to stay, it would be difficult and dangerous for anybody to propagate that interest rates should come down. We need to understand also that Nigeria traditionally does not have a low interest regime simply because we are not able to control our inflation.

There are efforts today to bring down interest rate, but the efforts should be concentrated first on bringing down inflation before we start talking about bringing down interest rate. I understand the fact that it is desirable for the economy to borrow at low interest rate, but we need to understand that in the context of the Nigerian economy, what is more important today is to make sure that our exchange rate is stable and low enough to sustain the economy. The reason is very simple. We have a very high import component of our cost. So, irrespective of what your interest rate is today, if the exchange rate continues to go up, the impact on inflation will be much higher than we are seeing today. I therefore support the present efforts of the central bank in first of all tackling the exchange rate problem to make sure that we have a stable and sustainable exchange rate. When you do that, the impact is felt on other sectors of the economy including bringing down inflation rate. When inflation rate becomes lower than it is today, it therefore forces the central bank to bring down interest rate. You shouldn’t take interest rate alone in isolation and say you want to bring it down, that would be very academic and can distort the entire system..."
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