09042018 - AS APC'S NEC MEETS TODAY: Oyegun, Tinubu's ‘soldiers’ head for showdown

32 — Vanguard, MONDAY, APRIL 9, 2018
(08052201997)
MPC and the blind leading the blind
THE Central Bank’s
Monetary Policy
Committee, decided on
Wednesday, April 4, 2018, to
retain its Monetary Policy Rate
(MPR) at 14 per cent, while
mandatory Cash Reserve Ratio
for banks, would remain at 22.5
per cent. Disturbingly, however,
there is no real hope that, such
rates which have subsisted for
almost three years and inflicted
so much social agony will now
redeem the economy!
Clearly, the prevailing 14 per
cent inflation rate will make Naira
income earners poorer this year,
while, industries will struggle to
survive, if they pay well over 20
per cent to borrow. Similarly,
government will be compelled to
pay over 14 per cent to ironically
borrow to service its risk free
sovereign debts!
The above title was first
published on October 5, 2015,
when MPR was 13 per cent, CRR
25 per cent while inflation
trended at 15.5 per cent; a
summary of that article follows
hereafter. Please read on.
“The Monetary Policy
Committee is the 'Think Tank' for
best practice strategies that
should drive Nigeria's economic
growth and prosperity. Thus, if
the MPC's recommendations
were appropriate, inclusive
economic growth would evolve;
conversely if MPC's diagnosis
and prescriptions are wrong, then
our current stunted growth
experience, must inevitably be
the product of Policies mid-wived
by the MPC.
Nonetheless, while the
complimentary role of fiscal policy
in a nation's economic growth is
undeniable, best practice money
supply management, can
however redeem a grotesque
fiscal plan; conversely, an
"excellently structured" budget
will grossly diminish in value if
extant monetary strategies
sustain rising inflation with,
increasingly high cost of funds
and an unstable Naira exchange
rate determined by fiat!
Consequently, a nation with a
benevolent spread of latent
wealth, with diverse agricultural
and mineral resources, will
remain poor if there is brazen
indiscipline in managing its
money supply; for example, if the
authorities recklessly and
liberally, continuously print or
create money (values), inflation
would hit the roof, and all income
earners, will ultimately become
traumatized and pauperized as
the Naira’s purchasing power
becomes steadily whittled down.
Furthermore, subsisting high cost
of loanable funds will also make
sustainable real investments a
challenge, and ultimately
deepen our already suffocated job
market to precipitate a wave of
social insecurity! Consequently,
the MPC’s role in promoting best
practice management of money
supply, is recognised to be
pivotal for achieving enhanced
social and economic welfare for
our people.
Regrettably, however, for over
two decades, the best efforts of
MPC/CBN 'collaboration' have
failed to successfully manage
money supply and keep
inflation, below best practice level
of 2% to stabilize the value of all
incomes; furthermore, subsisting
monetary policy directions have
also failed to bring down cost of
borrowing, to supportive levels
below 10%. It is clearly unrealistic
and foolhardy to expect credible
economic growth or indeed
successful diversification, when
cost of funds approaches 30% for
real sector domestic investors.
Regrettably, however, it is
inexplicable that despite
Nigeria’s heavy unemployment
burden, our MPC 'Think Tank'
has, consistently endorsed
inappropriately higher doubledigit
Monetary Policy Rates,
which in turn, compel banks to
lend to customers, including the
productive sector at clearly
oppressive rates, well above 20%.
Incidentally, when the MPC
concluded its 103rd bimonthly
meeting last week (21/9/2015), it
retained its existing, anti-growth,
13% benchmark for CBN
advances to banks, while it
slashed the cash ratio, which
commercial banks must retain as
The Monetary
Policy Committee is
the 'Think Tank' for
best practice
strategies that
should drive
Nigeria's economic
growth and
prosperity
reserves, from 31% to 25%. The
overt interpretation of such
monetary indices, is simply, that
CBN appears impervious to the
crying needs of the real sector for
access to cheaper funds;
furthermore, the adoption of a
cash reserve ratio which is as
high as 25%, also suggest that
the CBN clearly considers the
prevailing level of money supply
worrisome
and
counterproductive to price
stability; consequently the apex
bank’s intention is clearly to
reduce both consumer spending
and the capacity of banks to
extend credit to their customers,
despite the downside, that the
high monetary policy
benchmarks adopted for this
purpose, would restrain
investment and industrial
capacity utilisation and
significantly impede job creation
in the economy.
Thus, for these reasons, the
MPC's regime of inflation and
interest rates have historically
been clearly out of tune for an
economy with very low
consumer demand, a shrinking
industrial base, and an
irrepressible and socially
poisonous rate of
unemployment.
“The MPC's tight money policy
is clearly traceable to the fear that
a lower cash reserve
requirement for banks will
expand the economy’s already,
dis-comfortingly bloated money
supply to facilitate increased
consumer spending, which could
trigger inflation well beyond 10%
to threaten price stability and the
purchasing power of all Naira
incomes”.
“Instructively, the recent
enforcement of the Treasury
Single Account, reportedly, led
to a 10% reduction in the size of
perceived surplus Naira supply
in the system. Regrettably, this
reduction appears to be clearly
insufficient to tame the Naira
liquidity surplus which drives
oppressive inflation rates, and
instigate higher cost of borrowing
with collateral threats to job
creation, social prosperity and
national security.”
“The persistence of incurable
systemic, surplus money supply,
is clearly demonstrated by CBN's
notice of the 4th September, 2015,
that it removes some of the
perceived excess money in the
system to restrain inflation by
borrowing over N800bn from the
money market between
September and December this
year (2015). Incidentally, the
banking subsector, primarily, will
earn between 12-15% interest on
these loans which CBN will,
inexplicably, keep sterile or idle
in order to reduce the inflationary
pressures propelled by the threat
of unbridled systemic money
supply, chasing relatively few
goods and services.”
“Alarmingly, the CBN now
makes annual interest payments
of over N500bn to warehouse
such ‘burdensome’ surplus cash
it borrows and simply keeps idle
in CBN vaults and records, while
the real sector inexplicably suffers
severe funding deprivations
which invariably engender
contraction in production and job
opportunities. In this event, any
sectoral cash intervention funds
provided to stimulate economic
activity and job creation, will
inadvertently, ironically, further
expand the subsisting bloated
cash surplus in the system; so
that, ultimately the additional
liquidity injected will still be,
indiscriminately subsequently
mopped up also, once again, by
CBN despite the attendant high
interest rates that are clearly
discordant with rates payable on
sovereign risk free loans,
particularly by a country with
robust resource endowments
such as Nigeria.”
Worse still, it has been
suggested that the latest
reduction of cash reserve ratio
from 31% to 25% would
supplement/compound liquidity
by over N300bn; invariably,
reduction in CRR will
inadvertently also increase the
CBN’s portfolio for idle debts
which nonetheless, tragically
attract industrially
counterproductive interest rates.
Incredibly, inspite of these policy
contradictions, a gullible media
and a trusting but misguided
public still believe that the MPC/
CBN will lead our nation to
Eldorado.”
SAVE THE NAIRA, SAVE
NIGERIANS
FINANCIAL VANGUARD
cess and are now telling the
banks to adopt it. But it does not
remove, by law the relationship,
from the money moving
perspective, it is still the banks. I
don’t see it changing. I hear people
talk about cryptocurrency, it
will not play a significant part in
the world for their local transactions.
No government in the world
will give up its ability to generate
or create its own currency with
third parties it does not know. So
we will have cryptocurrency for
selected use the same way even
today I can buy dollars when I
want to send somebody to buy
something for me in America. But
for my day to day, it is Naira. The
only way you have local cryptocurrency
is if the central
bank issues it itself. But not that
anyone of those out there will
come in.
So will the banks be threatened
by the Fintechs? Yes. I think
there is even other business that
is easier for the Fintechs to get
involved in. Insurance, anything
that requires a lot of technical
use is actually easier.
Even in some aspects of health,
but the money bit of the business
is banks, which is why
they are focusing on banks. It
is a collaboration that will happen.
It is not one taking over
from the other. The trend for e-
payment transactions last year
was that, yes there was still
growth but the rate of growth
slowed. What happened last
year that slowed down the
growth rate of e-payment transactions?
Why the slow pace of
growth?
We also noticed slow pace of
growth in BVN enrolment.
Why is this so?
Starting with transactions, if
you look in absolute terms, the
growth in 2017 was more than
the growth in 2016. But the base
had increased. So if you look
in absolute terms there were a
lot more transactions. It is because
the base has been increasing
over time so that is why
we are seeing a slowdown in
the build up. But there is a
lot more transactions in 2017
than in 2016. We think that will
happen for a while. But are we
going to back to such massive
growth? Now that goes back to
your question on the BVN; Almost
all bank customers now
have BVN. The number of account
continues to grow but the
numbers of individuals that
have account are not going as
fast.
So unless we bring more people
in you will find you and I will
be doing more transaction but at
some point, all my payments are
electronic. So there is no more
growth in electronic transactions.
So now I am still doing some
cash, but more and more we we
ECONOMY
No government will submit its currency to cryptocurrencies - Shonubi, NIBSS CEO
Continued from page 30
are doing cards, we are doing
transfers. Soon those of us that
have bank accounts will only be
doing electronic payments. So,
what next?
Those who are outside the
banking space will continue to
do business even though with
cash. So the focus has to do with,
how do we increase the 33 million
to 40-50 million? How do we
bring people in, into the banking
space and then we will begin
to see the growth again pick
up significantly and that is one
of the aims this year from the
CBN to the banking industry to
focus on financial inclusion and
getting more customers into the
banking system.