Why CBN’s MPR is bad for the economy
I am completely disappointed with the outcome of the CBN MPC meeting. Rather than continue to reduce MPR so as to help the Buhari administration’s goal of jumpstarting economic diversification and real sector-led investment in industrial and manufacturing activities to grow the economy and create the badly needed jobs, Emefiele’s CBN decided to further increase interest rates.
Whatever argument they’re putting out there should not be taken seriously than that they are working to undermine this government.
If they say it’s because of increasing inflation rate, they should be informed, that some countries have their inflation rates higher than their key interest rates (central bank rates), especially when the central bank’s MPR is focused on improving the economy.
Even our so-called inflation rates that are produced by National Bureau of Statistics (NBS) are so lacking in credibility that in most cases, they are doctored figures done to favour the banking and financial sector since it is on this basis that pro – banks high MPR-like 12% of Tuesday’s MPC meeting – is produced.
Turkey’s interest rate at 7.500% against inflation rate at 8.78% has the interest rate lower than the inflation rate. The same is Japan where in an effort to grow the economy by growing consumption has its interest rate at – 0.100% against its inflation rate at 0.000%.
The only way government can free the economy from this perennial sabotage is by making sure that CBN’s monetary policy stance is in line with government’s overall economic growth and diversification agenda. But the most plausible way to bypass this anti-SMEs, anti-real investment monetary policy of the CBN is by the federal government creating a specialised development bank to function as the provider of cheap loans (single digit loans) to Nigeria’s critical and strategic sectors such as industrial, manufacturing and agricultural/food processing sectors.
The current harmonisation of the CRR regime should be reversed with CRR on public sector deposits separated from CRR on private sector deposits. With this, there’ll be a genuine pressure on CBN to drastically reduce CRR on private sector deposits to close to zero so as to encourage more private deposits, while pushing CRR on public sector deposits to close to 100% to discourage public funds supposedly quarantined to find their way to commercial bank lending books.
The ongoing argument that the implementation of the TSA has taken care of that and as a result, makes the separation unnecessary is not true because most states, and the legislative and the judicial arms of government, are yet to fully comply with the TSA policy.