How Govt Fuel Inflation, By Banks
From Kunle Aderinokun in Abuja
Banks have blamed the Federal Government for the persistent high inflation rate in the country. They attributed the soaring inflation trend to interest rate demands made by government and its agencies on banks.
The accusation was leveled by the sub-committee on monetary and fiscal policies of the Chartered Institute of Bankers of Nigeria (CIBN), in its report to the Bankers' Committee on developments in the financial system.
The accusation by the banks is expected to form the major issue for deliberations by the Bankers' Committee at their first ever meeting in Abuja tomorrow.
The report stated that "the present inflation rate of 19 per cent has caused the demand for higher rates from owners of funds, making deposit rates to continue to be on a rising trend."
The sub-committee expressed displeasure that, "in spite of the new trends, banks are restricted to the four percent above Minimum Rediscount Rates (MRR) ceiling", which "does not cover overhead expenses".
It identified four issues as fuelling the inflation problem. These are:
The continued high interest rate demand by government agencies from banks;
The rising inflation trend which makes it necessary for depositors to ask for high interest rates.
The increasing high cost of doing business occasioned mostly by infrastructural failure in the economy; and
Occasional threats by the Central Bank of Nigeria (CBN) to withdraw public sector deposits in banks, which usually tend to induce pressure on interest rates.
The sub-committee frowned at the failure of the Federal Government to meet its obligation under the tripartite agreement, that pegged the ceiling on interest rates at 25 per cent.
"Government's inability to meet its obligations under the tripartite agreement with the CBN and the banks had dislocated the envisaged gains from the agreement," the committee said.
The committee, however, added that, the "the fundamentals upon which the agreement was reached had changed and there was a need for all parties in the agreement to revisit it soonest, if progress must be made".
The committee also urged the CBN "to put in proper perspective the issues of withdrawal of public sector funds from banks so that it would not constitute a shock to the system".
The CIBN sub-committee report also revealed that a total of 1,044,967 instruments worth N895 billion were cleared by banks in two months (April and May) through the operations of the automated clearing system. This translates to a daily average of 25,000 items worth N22 billion.
Three banks were reported to have joined the Clearing House between April and May, bringing the total number of active participants in the clearing system to 75 banks.
However, the report commended the CBN for effectively managing the foreign exchange and foreign reserve developments, which have led to gradual appreciation of the Naira.
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