TheNigerianVoice Online Radio Center

Listen to music while browsing

NIGERIA ECONOMIC ACTIVITIES: INFLATION, INTEREST RATE AND CBN MEETING

Click for Full Image Size

Nigeria Economic Activities: Inflation, Interest Rate and CBN Meeting Inflation rate at 12.9%, Central Bank of Nigeria (CBN) retains interest rate at 12 percent. But economic activities are becoming unpredictable.

The two-day meeting of Central Bank of Nigeria's Monetary Policy Committee (MPC) ended with a lukewarm outlook, projection and pronouncement on the state of the economy by the Governor Sanusi, the head of the country's apex bank. Sanusi noted that national economic growth may encounter some hiccups in the absence of "structural reforms". The head of the country's Reserve institute buttresseed his comment by pointing to the slight reduction of the economic growth from 7.45 percent in 2011 to the projected 6.5 percent for 2012.

It may not be fair to the monetary policy committee to ascribe the two-day summit as futile and ineffective but that may be the case. Before the meeting there were already standing facts that remained unchanged. At a whopping 12 percent interest rate, even at the face of the surging inflation rate at 12.9 percent, Central Bank of Nigeria (CBN) cannot afford to jack-up the interest rate.

The tightened of monetary policy to mop up liquidity in the monetary base may have become unresponsive and waned. Therefore monetary policy committee retained the monetary interest rate at 12 percent. The further hiking of the interest rate may result into unintended consequences. A higher interest rate may probably appreciate capital market, but at same time, it will constrict credit and liquidity in the hands of business community. And such a scenario and development comes with the slow down of economic growth. It is beginning to look like, that the interest rate at 12 percent is gradually slowing down economic growth.

Moreover the further intensification of liquidity mopping can result in the slowing down of the economy. The only alternative left to the monetary policy committee is to look beyond tighten of monetary policy.

The executive arm of the government should inject fiscal policy to complement the actions of the monetary policy committee. Sanusi was underlining the forthcoming weakness of the economy, emphasizing the needed structural reform of the economy. Sanusi was probably alluding to fiscal policy application.

When Asia was experiencing higher inflationary rate in 2011, at a point monetary policy tightening was becoming waned, HSBC Global Research advised Asia to tighten fiscal policy. HSBC Global Research stated that:

“Monetary policy, in its usual form, no longer works. Raising rates simply draws in more capital, leaving financial conditions highly stimulative.

Currency appreciation, of the size needed to cut off those funds, would be too disruptive. Capital controls could square the circle, but these are never watertight. Meanwhile, to some, regulatory tightening has become a valid alternative, yet this is difficult to calibrate and best serves as a complementary, rather than primary, tool to tackle inflation. In short, the hands of central bankers are tied.”

Nigeria is at a crossroad economically and the time has come for the policy makers to look beyond the limited effect of the monetary policy.

The formulation, presence and implementation of a well planned and coordinated fiscal policy can be the affirmative threshold needed to stem down the surging inflationary trends.

Written By Emeka Chiakwelu
strategist@afripol.org


Disclaimer: "The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of The Nigerian Voice. The contents of this article are of sole responsibility of the author(s). The Nigerian Voice will not be responsible or liable for any inaccurate or incorrect statements contained in this article." © thewillnigeria.com.
Articles by thewillnigeria.com

Wear the old coat and buy the new book.
By: roylexi.com

“If Mr Goodluck Ebele Azikiwe Jonat

Thursday, March 26, 2015

[B]I know this week will eventually come and Saturday March 28, 2015 will be her ...
read more »

Nigeria’s General Elections—And The

Monday, March 30, 2015

[B]Nigeria, we hail thee, Our own dear native land, Though tribe and tongue ma ...
read more »

Revisiting The Abuja Peace Accord

Sunday, March 29, 2015

At an event organized by the office of the National Security Adviser to the Pres ...
read more »

“E Go Better,” Kill Nigeria

Saturday, March 21, 2015

[B]When we examine the predicament of Nigeria; when we review our history in lig ...
read more »