Time For Pro-Investment & Pro-Growth Monetary Policy In Nigeria

First, let me say that it's a welcome development even though more needs to be done and must be done since this administration wants to diversify the economy away from oil with jobs.

That they have now decreased MPR from 13% to 11% is because TSA fully implemented members of the Bankers Committee being the ones insisting on keeping the interest rates as high as possible have finally discovered that any more such insistence would be counterproductive if not shooting themselves in the foot, especially without anymore public deposits to earn them some easy money by hiking the country's interest rates.

No doubt next MPC meeting, we'll expect MPR further decreased to about 9% after all there's no genuine reasons for Nigeria's interest rates to be among the highest rates in the world.

Harmonized CRR reduced from 25% to 20% is equally the beginning of the drastic reduction of CRR since that is the only the way as fractional reserve banks, our commercial banks can have less of their depositors' money in CBN vaults so that they have more to lend to make more returns on those deposits for their depositors and for themselves. I will expect the so-called harmonized CRR next year to get to as low as 5%.

The reduction of MPR will equally reduce financial speculations caused by the present level of high arbitrage caused by our high interest rates against low interest rates in other peer countries.

Also next year will witness low level of economic financialization since in the absence of free and easy money will force our banks to now begin to work together with the real sector economy to promote the kind of economic activities that grow both the real returns and banks' profits. So all in all, the Buhari effect is forcing both the CBN and banks change the old game.

The impact of high MPR and high CRR can't be overemphasised. It includes high level speculation by foreign portfolio investors who taking full advantage of the high arbitrage and the low capital gains tax in the country who made tremendous profits in Nigeria especially with the full connvance of our banks helping them smuggled cheap money at less than 3% which they have to lend to our ever-willing government to borrow domestically at as high rate as 13%, making both our banks and foreign portfolio investors milking the country dry.

During the past 16 years as a result of artificially hyping MPR, thanks to the high arbitrage, this country has lost trillions of naira to speculative investors to the extent that between 2010 and 2015 alone over N3.1tn was lost thanks to the interest rates artificially kept high by the CBN that has always been in the hands of our commercial banks who during these years populated the apex bank.

Source: Odilim Enwegbara, The Nigerian Voice
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