Stories by Kayode Tokede
The Central Bank of Nigeria (CBN) has disclosed that credit to private sector dropperd to N22.26 trillion in July as against N22.28 trillion in June 2018.
The apex bank in its Money and Credit statistics obtained by our correspondent stated that credit to private sector opened January at N21.99 trillion, the lowest amount reported this year.
According to CBN, a total of N22.62 trillion was highest credit to private sector in February this year.
The Money and Credit statistics disclosed that Net Domestic Credit grew by 0.34 per cent to N25.65 trillion as at July from N25.6 trillion reported in June.
The growth in net domestic credit was driven by N3.39 trillion credit to government in July from N3.28 trillion reported by CBN in June.
On credit to private sector, the Monetary Policy Committee members of CBN were of the view that raising interest rate at this time would weaken consumption and raise the cost of borrowing to investors in the domestic economy.
“In addition, the policy would trigger the re-pricing of financial assets by deposit money banks, thus further constrict credit to the real sector, and that would promote non-inclusive growth,” the committee chaired by CBN’s governor, Mr. Godwin Emefiele had said in July.
“Overall, the MPC was of the opinion that, while it is difficult to encourage job creation in an environment with deficit infrastructure, the Committee believes that the Bank should continue to encourage deposit money banks (DMBs) to increase the flow of credit to the real economy to consolidate economic recovery.
“In this regard, the Committee believed that a heterodox approach to reform the market in order to strengthen the flow of credit would be appropriate at this time.
“Consequently, credit constrained businesses, particularly the large corporations are encouraged to issue commercial paper to meet their credit needs and the Central Bank of Nigeria may, if need be, buy those instruments to complement the efforts of the DMBs,” the communiqué signed by Emefiele explained.
Analysts at the Financial Derivatives Company Limited have said, there were growing level of risk aversion by the banks towards lending to the private sector.
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.”
However, the money and credit statistics by CBN disclosed that broad money (M2), which generally is made up of demand deposits at commercial banks and monies held in easily accessible accounts climbed year-on-year to N24.97trillion as at July, from N24.8 trillion at the end of June.
Similarly, narrow money (M1), which includes all physical monies such as coins and currency along with demand deposits and other assets held by the central bank edged higher year-on-year to N10.67 trillion in the review month, as against the N10.7 trillion recorded the previous month.
However, while Banks’ Reserves increased to N4.45 trillion as at July, from N4.1 trillion, Quasi Money, which are highly liquid assets other than cash, that can be quickly converted, stood at N14.3 trillion as at the review month, as against N14.1 trillion that was reported by CBN in June.