The policy may increase the poverty level in the country as the poor may become poorer
Last week, the Monetary Policy Committee of the Central Bank of Nigeria (CBN), under the headship of Mr Godwin Emefiele, -who is also the Governor of CBN- met to review the monetary policy of the apex monitoring bank, against the backdrop of falling oil price in the international market and Nigeria’s dwindling external reserves.
Major decisions taken by the Committee included an increase in the Monetary Policy Rate from 12percent to 13 percent. The Cash Reserve Requirement (CRR) on private sector funds was also increased to 20percent from 15percent and to commence immediately. On the other hand, the MPC retained the CRR on public funds at 75percent, while it moved the midpoint of official exchange rate to N168/US$.
The 11-member committee of the MPC hinged these decisions on the need to address the dwindling external reserves of the country, arising from the falling oil price and the increasing gap between official and Bureau De Change rates of the naira to dollar, which has raised some concerns on sustained exchange rate of the naira and single digit inflation.
Much as this Newspaper agrees with the monetary authorities that there is a dire need for price and exchange rate stability, including reducing inflation rate in the country, the truth is that the reality of the situation in the real sector today, makes it difficult to appreciate the impact of the new monetary policy. Indeed, in most countries of the world where there are challenges of unemployment, low production and capacity utilisation, what the government does is to provide the enabling environment for the real sector to grow. But then if the real sector cannot operate as a result of obstacles deliberately put on its path by the government, then of course there would be less employment and growth in the economy. This obviously is the sad implication of the monetary policy.
At 13 percent monetary policy rate, the lending cost of funds by the banks to borrowers would obviously increase as banks try to shore up their balance sheet. Certainly, it will be more difficult for the industrialists to access funds from the banks. This of course may lead to higher unemployment, low level of productivity and higher level of insecurity. Indeed, the new monetary policy has profound implications on the economy and the banking sector. We agree with the thinking among a school of thought that the policy may increase the poverty level in the country as the poor may become poorer.
Of course, the usual argument given by monetary authorities is that there is need to mop up excess liquidity in the system. But we wonder how there can be surplus naira in the system where there is not enough for the real sector.
Perhaps, the government needs to address the cause of excess liquidity, which is believed to be traceable to the CBN policy of substituting Naira for dollar revenue. Until this is effectively addressed, it is our view that it might be difficult to achieve price and exchange rate stability.
