A former deputy governor of the Central Bank of Nigeria (CBN) and the 2019 presidential candidate of the Young Progressives Party (YPP), Professor Kingsley Moghalu, along with other economic experts, have expressed divergent views on the multiplier implications of the latest CBN monetary policies on the Nigerian economy.
The CBN Monetary Policy Committee increased the benchmark interest rate by 400 basis points to a record 22.75 per cent on Tuesday.
CBN governor Olayemi Cardoso, while disclosing this during the communiqué reading of the first MPC meeting of the year held in Abuja, mentioned that the committee voted to adjust the asymmetric corridor around the MPR to +100 to -700 from plus 100 to -300 basis points and raised the cash reserve ratio from 32.5 percent to 45 percent.
He stated, “All 12 members of the committee decided to further tighten monetary policy by raising the MPR by 400 basis points to 22.75 per cent from 18.75 per cent.
Adjust the asymmetric corridor around the MPR to +100 to -700 from plus 100 to -300 basis points. The committee also raised the cash reserve ratio from 32.5 per cent to 45 per cent while retaining the liquidity ratio at 30 per cent.”
While reacting via his handle, the former deputy governor of the CBN commended the apex bank’s latest monetary policies, stating that it would significantly check the country’s rising inflation.
“Correct move by the CBN Monetary Policy Committee to dramatically hike the Monetary Policy Rate by 400 basis points to 22.5 per cent. The situation calls for nothing less if we are to check inflation over 12-18 months. We did the same a decade ago to bring inflation from 14 per cent to 8 per cent.
It will hit businesses hard, but inflation is hitting harder. We must slay the inflation dragon lest it consume our economy, and we head to Zimbabwe/Venezuela. The money supply must be reduced. Price stability must take priority before economic growth in the current situation,” the political economist stated.
Also reacting, the Chief Economist & Partner at SPM Professional, Paul Alaje, however, noted that the latest monetary policy would have adverse multiplier effects on the country’s economy.
He said: “Businesses that are on banks’ facilities (loans) should brace up for rate adjustments in the short term. This may further push costs up, and, in the case of transferable burden, these costs may be passed on to consumers. Employment will be crowded out (that is, unemployment will increase, this is expected within the next quarter). Inflation is expected to grow slowly despite the rate adjustment. This is because the effect of cost-push is still potent on inflation. This may affect the GDP growth rate if the fiscal authority does NOT respond with major capital expenditure within the shortest period. If FAAC inflows and spendings do not impact the economy as expected, its combined impact with this adjustment in rates may lead to financial distress in the system, given the reality of the current economic quagmire. We have made our choices. However, economic choices have consequences,” he explained.
In a similar vein, a policy analyst, MS Ingawa, said: “The Monetary Policy Rate (MPR) is the rate the CBN lends to commercial banks. Commercial banks then use this rate as their benchmark rate for their lending.
It simply means that loans in commercial banks and other lending institutions will be more expensive than it used to be, and goods and services that rely on bank loans (which are the majority) will have to pay more to borrow money for production.
Being the cost of fund (Interest Charged on Loans) an integral part of production cost, the goods and services will be more expensive. Central Banks increase MPR when the inflation is high so as to limit the inflow of money and credit into the economy.
In the next few days, banks will notify their debtors of the hike in interest rates on their existing loans,” he added.
TRIBUNE
