Economic consultant, Mr Olabode Agusto, has advised the Central Bank of Nigeria (CBN) to review its interest rate management strategy.
Agusto gave the advice at the Institute of Directors (IoD) fellows’ investiture with the theme: “Stimulating Nigeria’s Economic Growth and Development: Lessons and Opportunities from Recent Challenges” on Thursday in Lagos.
He said that negative real interest rates impaired the ability of banks to mobilise deposits from savers, fueled speculative demand for foreign exchange and eroded the value of pension assets.
Agusto, Founder of Nigeria’s leading credit rating agency, Agusto & Co, also urged the CBN to bring the Cash Reserve Requirement down to normal levels of not more than 10 per cent of local currency deposits.
He said that above normal cash reserves had impaired the ability of banks to lend to businesses and households.
“Additionally, it also impairs the ability of banks to build capital from internally generated profits and over time increases banking industry leverage to dangerous levels,” he said.
Stressing the need to urgently fix the finances of the government, he noted that Nigeria’s local currency debt levels were unsustainable as the bulk of government spending was to pay expenses and not in the growth-promoting areas.
Agusto said that policy changes such as improved tax compliance, dedicated bulk of additional revenues towards infrastructure would help economic growth.
He also charged the government to ensure transparency, accountability and value for money on how tax revenues are spent, refocus spending, and improve human infrastructure, principally on skills acquisition for industries targeted for growth.
“The root cause of inflation in Nigeria is that the actual output of the nation is significantly lower than her potential output, meaning that at least 22 million people willing and able to work are unemployed.
“We cannot peg the NGN/USD exchange rate successfully when Naira inflation is on average 10 per cent higher than USD inflation.
“The rate at which the FGN borrows Naira is an important benchmark, it should not be substantially below the rate of inflation because this discourages savings, gradually destroys pension assets and fuels speculative demand for forex.
“Nigeria needs to adopt the crawling peg approach to manage the exchange rate,” he said.
Dr Ije Jidenma, President, IoD, charged the 31 newly inducted fellows of the institute to continue to adhere to corporate governance practices and project the visions and objectives of the institute to drive the nation forward.
“For the new inductees, I would remind you that the esteemed status comes with a lot of honour, respect, demands and challenges.
“But with your pedigree, you would not let the institute down in your daily conduct and private life.
“You are also charged to remain steadfast and focused to issues that would bring about positive changes to the institution and Nigeria as the institute continues to be poised to relating with the government on economic matters,” she said.
Responding on behalf of the fellows, Prof. Enase Okonedo, Dean, Lagos Business School, appreciated the institute for the honour, noting that the induction conferred much more than a title.
“We pledge and commit to uphold the practices and follow through with the mandate of the institute,” she said.