Olayemi Cardoso, governor of the Central Bank of Nigeria (CBN), says interest rates are expected to decline gradually as the country’s economic reforms continue to progress. He also expressed confidence that commercial banks would increase lending to small and medium-sized enterprises (SMEs).

Cardoso made the remarks on Wednesday during a fireside discussion with Ngozi Okonjo-Iweala, director-general of the World Trade Organisation (WTO), at the seventh Africa Emerging Markets Forum in Abuja.

Addressing concerns about financing for SMEs, the CBN governor admitted that borrowing costs remain high but said the situation is a short-term outcome of reforms designed to restore macroeconomic stability.

“Interest rates are high. Exchange rates have moderated and are stable,” Cardoso said.

“Into the future, my expectation is that over time, interest rates will begin to moderate. Over time, they will begin to moderate.

“It’s a price, unfortunately, we are having to pay because of these policy flip-flops.”

He said the apex bank has introduced measures to strengthen development finance institutions by allowing them greater flexibility to support businesses while maintaining tighter supervision of commercial banks.

Cardoso added that the ongoing bank recapitalisation programme is expected to improve the flow of credit to the productive sector of the economy.

“Now that we have finished a banking recapitalisation exercise and the banks have a lot of money at their disposal relative to previously, you’re likely to find that there will be more interest in SMEs as rates begin to drop,” he said.

“Some of the quote-unquote arbitrage opportunities, easy money-making opportunities that used to exist have disappeared.

“Banks are in the business to make money. They will look at how they can tweak their risk models and ensure they can support those areas, the SMEs, and we will encourage them.”

He also disclosed that the central bank is developing additional measures to encourage increased lending to small businesses.

“So it’s not lost, please. I know it sounds a little bit hard, but I am confident that these are all temporary issues,” he said.

“We will get out of it. We will get to a situation where rates will become more moderate, and where it will be easier for SMEs to access credit not only from the development institutions but also from the banks.”

The CBN governor defended the decision to reduce intervention lending, saying development finance was not intended to be the central bank’s core responsibility.

“Much of the fiscal functions were put on the central bank,” he said.

“That’s what it is, and quite frankly, that’s one side of it… the extent of the misapplication of intervention on the central bank was so humongous that the capacity to do these things is limited.”

According to Cardoso, the return to orthodox monetary policy has helped stabilise the financial system and created a stronger foundation for long-term economic growth.

‘CBN TO PUBLISH DOCUMENT DETAILING NIGERIA’S ECONOMIC REFORMS’

He added that the apex bank will soon release a document outlining the reforms implemented under the current administration.

He described the changes as a “fundamental shift” in the country’s economic management.

“In fact, we’ve finished a draft, and in due course we will document and we’ll publish it, and let people know that these are the things that we have done that have taken us to a particular place,” he said.

The CBN governor said it is also important that “we avoid the policy mistakes of the past, so that in future you can always have reference to a particular book or document which lays it out extensively”.

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