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CBN to buy commercial papers from companies at single digit rates

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CBN to buy commercial papers from companies at single digit rates

In a bid to mitigate the effect of the tight monetary policy stance which has slowed down outflow of funds to the real sector of Nigeria’s economy, the Central Bank of Nigeria (CBN) said it would encourage large corporate organizations in the country to issue Commercial Papers (CPs) to boost their operating capital.

Commercial papers are money-market securities sold by large corporations to obtain funds to meet short-term debt obligations, and are backed only by an issuing bank..

The CBN Governor, Godwin Emefiele, who made this disclosure at the end of the two-day Monetary Policy Committee (MPC) meeting of the bank on Tuesday in Abuja, said the bank would make funds available to the sector of the economy at single-digit interest rates.

Emefiele pointed out that the bank was ready to lend to the companies by buying the commercial papers, adding that it would also encourage banks to lend to the manufacturing and agriculture sectors.

The CBN Governor said the development became necessary because the Deposit Money Banks (DMBs) had frustrated past incentives by CBN aimed at encouraging them to lend to the real sector of the economy.

“In order to complement the banks, we expect that those CPs will come in single-digit of 9 per cent or below 10 per cent, and for a long tenure, as high as, five years or seven years, with a two-year moratorium, and for specific purposes.

“If the CBN sees those kinds of notes in the market, we will complement the efforts of the banks through any mechanism to support that by lending to that corporate at that single-digit rate.

Read also:  CBN retains interest rate at 14% for 12th consecutive time

“if a bank loans such money for new projects or plant expansion and is verifiable, not for re-financing, a project for seven years inclusive of two years moratorium at 9 per cent, that bank providing those evidence and verified by the CBN, we will go into bank’s Cash Reserve Ratio and we will release cash of the equivalent sum to that bank at zero cost in which case that banks earns its spread of 9 per cent of that money.

“We feel this is novel. It is something that we should give a chance. In the past, we had reduced CRR and released liquidity into the market but the liquidity was not channeled into the high-impact, employment-generating sectors and productivity sectors of the economy.

“That is why we feel we should approach it through this means. We believe this will work. We will, from time to time, monitor the level of liquidity in the market and we feel that rather than the banks using their monies to buy Treasury Bills, they can put money into these sectors and we will provide the liquidity to fund these transactions, as long as they meet these specified terms and conditions.”

The MPC of the CBN had held the Monetary Policy Rate at 14 percent for the 12th consecutive time to monitor the magnitude of the liquidity impact of fiscal injection and election related expenditure in the second half of 2018.

​By Oluwasegun Olakoyenikan​….

 

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