Lagos — Analysts at the Partnership Investment Company Plc have said that high interest rate regime is the major problem that discourages banks from their primary function.
The company's analysts stated this in its latest edition of weekly report. They said the high interest rate discourages banks from their primary function as risk takers, preferring instead to stake on government fixed instruments rather than expand their loan books at expected levels.
"The result is pseudo growth while the real sector remains in limbo," the report said.
The analysts said, "As a new fiscal year begins, we recognize that the budget benchmark creates new challenges for managers of the economy. Of particular note is the need to boost production in the oil and gas as well as agriculture sectors in which the country has comparative advantage."
This will help to expand the country's revenue base and improve balance of payment. At this rate, inflation targeting needs to be married with other economic consideration in order to achieve a more robust economy, the report advised.
The Monetary Policy Committee (MPC) led by the Central Bank of Nigeria last week maintained the benchmark interest rate at 12 per cent. It also retained the cash reserve and liquidity ratios of banks at 12 per cent and 30 per cent respectively.
According to the report, "The committee said despite the benign inflationary outlook, there was the need to maintain tight monetary policy in order to sustain the gains recorded so far. This is in view of the increased spending by government, the higher benchmark oil price in the 2013 budget and the US debt ceiling with possible impact on commodity prices."
While commending the Central Bank for its effort at maintaining price stability, (inflation dropped by 30 basis points in December and the naira has been stable), this must blend with the need to stimulate growth and consumption. At current rates, the real sector can hardly thrive as the huge cost of funds is a disincentive to investment.