- Banks Shying Away from Credit to Private Sector – FDC
There is a growing level of risk aversion by the Nigerian banks towards lending to the private sector, analysts at the Financial Derivatives Company Limited have said.
The FDC, which is headed by Bismarck Rewane, a foremost economist, noted that credit to the private sector declined by 18 basis points to N22.25tn in April 2018 from N22.29tn in December 2017.
“The CBN is of the opinion that cutting rates would boost liquidity which could trigger inflationary pressures. However, a reduction in interest rates will support increased lending to the private sector,” the analysts said in their latest economic bulletin.
They said the availability of credit to the real sector would spur increased production and boost aggregate output, adding, “In the long run, the impact is lower prices and inflation.”
According to the FDC, headline inflation is expected to slow further in May, falling by 68bps to 11.8 per cent from 12.48 per cent in April.
The analysts said, “This will mark the 16th consecutive monthly decline and the lowest rate of inflation since February 2016. It is noteworthy that both the rate of inflation and slope of the curve have declined.
“This moderating trend in headline inflation (year-on-year) is mainly driven by base year effects. We expect food and core indices to move in tandem with headline inflation.
Month-on-month inflation, according to the FDC, is expected to rise to 1.28 per cent (16.45 per cent annualised) after recording a marginal decline of 0.83 per cent (10.45 per cent annualised) in April.
The firm said, “This is largely due to the spike in food prices. This increase was mainly due to a number of factors including the Ramadan fast, the commencement of the planting season and the herdsmen attacks in some northern parts of the country.
“The sharp increase in month-on-month inflation could signal an inflection point in the headline inflation.”
It added, “If our forecast is accurate, it increases the possibility of a rate cut at the next meeting of the Monetary Policy Committee of the Central Bank of Nigeria in July. Even though the policy rate has remained unchanged at 14 per cent per annum, effective Treasury bill rates have fallen sharply by 371bps this year. In spite of lower interest rates, credit to the private sector has remained constrained.”
The analysts said the imminent presidential assent to the 2018 appropriation bill this month and the release of the authority to incur expenditure would exacerbate inflationary pressures, due to the corresponding increase in liquidity and foreign exchange demand.