‘CBN rate cut may ease borrowing costs’

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The Managing Director/Chief Executive Officer of Coleman Technical Industries Limited, George Onafowokan, has described the recent adjustment in the Central Bank of Nigeria’s monetary policy rate as a “reset” aimed at aligning monetary policy with prevailing market realities.

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Onafowokan said in a statement issued by his company on Friday that the market had already moved away from the previous 26.5 per cent rate, with commercial lenders offering loans at about 22 to 23 per cent.

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According to him, the gap between the CBN’s policy rate and actual lending rates had become misaligned, making the latest adjustment a realignment with prevailing conditions in the financial market.

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He attributed the shift partly to the recapitalisation of Nigerian banks, which significantly increased the equity and lending capacity of financial institutions.

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Onafowokan explained that banks that previously had capital bases of about N50 billion were required to increase them to N200 billion, while institutions with N200 billion were required to scale up to N500 billion.

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He said the additional capital eventually increased liquidity in the financial system, prompting banks to compete for lending opportunities and pushing market lending rates below the CBN’s previous policy rate.

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“The market found its own level based on the amount of liquidity and the new money in equity in the market. And so it repositioned itself and started lending lower than the CBN was,” he said.

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Onafowokan said the impact of the rate adjustment would not be immediate but expressed confidence that it would begin to reflect across the economy within the next two to three months.

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He said lower interest rates could also affect treasury bill yields and influence the decisions of foreign portfolio investors, while noting that Nigeria remained attractive to international investors because of the returns available in the country.

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The Coleman CEO also called for a reduction in the lending rate of the Bank of Industry, saying the institution’s current rate was becoming too close to commercial banking rates.

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He urged the CBN, Ministry of Finance and the Federal Government to support the BOI in returning to a lower lending rate, which he said would better reflect its development-finance mandate.

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Onafowokan further said the Nigerian economy was showing positive signs, citing economic growth of more than four per cent, declining inflation and relative stability in the naira.

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He maintained that the naira had remained resilient and advised Nigerians to have confidence in the currency, saying those who retained their naira holdings had benefited from its recent performance.

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“The economy is in the right direction,” he said.

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