Saturday, 01 August 2015 19:56

CBN Gov. Emefiele got caught up in a economic policy reverie?

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I have great respect for Gov. Emefiele the Central Bank Governor and some of us actually supported his appointment but today given all his fire brigade approaches and quick fixes with various unilateral policies bedeviling the struggling Nigeria economy on his watch has questioned curious school of macroeconomic minds and this has amounted to simply call it - a waste of Nigeria meager resources and show of professional incompetency. Gov.Emefiele latest decision on MPR is hogwash and asymmetrical.

The point of implementing policy through raising or lowering interest rate is to affect people's and company's demand for goods and services and this policy actions ultimately affects real interest rates, which in turn affect demand and output, teeming unemployment and most worst of it all inflation.

As a development economist, the last straw for me was his unthinkable suspension of foreign currency cash deposits and the retention of Monetary Policy Rate(MPR) pegged 13% to revamp liquidity in the system whereas, basis of MPR reliance for good economy is sordid not to talk about weak fiscal approach. This approach is detrimental to our economy especially to versed masses who are already in abject poverty, it will raise the cost of living of the verse population

Here are the reasons why the pegging of Monetary Policy Rate (MPR) at 13% rate will do to Nigeria economy:

- It will lead to hyper inflation, much of which we have been witnessed, already happening 1$ exchange rate to Naira is 245 ($1.00 Vs N 245) compared to six months ago of N 190 to $1

- It will lead to further increase in prices of goods and services in the country i.e. Gari and petrol prices etc

- It will affect the real sectors (housing, manufacturing & agricultural etc) as cost of borrowing would remain high and skyrocketing which ultimately detrimental to our bottom line and it can affect the projected growth i.e most of the huge factories are relocating to Ghana, Benin republic and elsewhere......

Fundamentally, one would expect our most revere Gov. Emefiele to understand the economic impacts of his decision that it will affect tremendously the movement of funds from capital market to the money market due to high interest rate.
There is no doubt, that if MPR is not lowered and reversed, the wages and prices will begin to rise at faster rates because monetary policy stimulates aggregate demand which is enough to push labor and Nigeria stock markets beyond their long-run capacities. In fact, a monetary policy that persistently attempts to keep short-term real rate low will lead eventually to higher inflation and higher nominal interest rates, with no permanent increases in the growth of output or weigh down deadly unemployment rate .
And I do understand, that there must be a trade -off between higher inflation and lower unemployment rate in the short run, which besides hardly measured in Nigeria, but I can tell Gov. that the trade -off disappears in the long run if pursued aggressively with acute monitoring.

Gov. should also know that perception plays a strong role, MPR policy affects inflation directly through people's expectation about future inflation in the country, petrol staggering prices could alert as driving forces for higher liquidity. If Nigeria workers, consumers and even the corporate businesses figure that higher inflation in the future is realistic, they'll ask for bigger increases in wages and prices and that in itself will raise inflation even without big changes in output.

Gov. Emefiele should be thankful as blessing in disguise, for back dropped wages in some states lagging year and months, curbing the cash liquidity to some extent. Its unfortunate but its econometric and its a reality

Just for example, in a simple terms, and hypothetically speaking here, a borrower (a Nigerian vulcanizer or a barber) is likely to feel a lot happier about a micro finance loan at 18% when inflation rate is lower than when it is higher . In any case, the value of the money that the borrower would pay back would actually be lower than the real value of the money when it was borrowed. Borrowers, of course would love this situation, while lenders would be disinclined to make any loans. So Mr. Gov. riding on inflation can be detrimental to economy, there are better ways to revamp liquidity

I'd expect Gov. to understand that lowering the rate will help to reduce cost of funds in the economy than his aggressive approach and choice that will inadvertently accelerate it.And to curb inflation, Gov. can easily add a risk premium to long term rates, which will make them higher anyway, in other words, the markets' expectations about monetary policy tomorrow have a substantial impact on long-term interest rate today.
And I strongly believe, he can inform markets about future values of the funds rate in a number of ways. For instance, CBN could follow a policy of moving gradually once it starts changing interest rates. Or, the CBN could issue statements about what kinds of developments the CBN or MPRC is likely to focus on in the foreseeable future; the CBN even could make more explicit statements about the future stance of policy

The current Nigeria economy situation will not experience the desire growth without proper funding of the real sectors(manufacturing, Agricultural etc) to boost our export to rejuvenate economic activities..... we had enough of bank reform in 2009 in finance industries besides needed now, moderate regulatory and I strongly believe, there is no need to put cog in the wheel of economic progress.

The retention of MPR at 13% and suspension of foreign deposit without clear strategy lacks economic blueprint and shallow.

The increase in interest rates can make domestic financial assets more attractive to investors than foreign financial assets. This situation can trigger an appreciation of the nominal exchange rate, thus reallocating expenditure in the economy. The latter takes place because this exchange rate adjustment tends to diminish the price of imports and raise the price of exports, which tends to slow aggregate demand and eventually reduce inflation. When the exchange rate appreciates, the cost of imported inputs declines, and thus firms' costs in general.
These developments have a favorable effect on inflation.

An interest rate increase tends to make bonds more attractive for investors
and reduces the demand for equity, making the value of these and other assets decrease. In a situation where the market value of firms decreases, these firms can face lower capacity to access financing, therefore hindering the consolidation of new investment projects. The latter also slows aggregate demand and therefore reduces in inflation

The current situation of the economy called for cautions and not unthinkable hasty decisions with doomed reverie.

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Akin Awofolaju Ph.D, CLE,CSP, CFE

Visionary Leadership •Business Strategy; Governance, Risk Management & Compliance (GRC) ;Digital Forensics Analysis, Quantitative Financing & Asset Management; High level Auditing/Internal Controls; Analytics Economics • International Business Expert• Global Strategic Alliances. Budget & Business Forecasting; Hedge Fund & Private Equity Expert; High-Stake Contract Negotiations. Key Partnership Development.Organizational Restructuring. Risk Management. Public and Media Relations • Forensic Accounting & Financial Analytics • Business Development • Mergers & Acquisitions • Executive Advisory Investment Analysis • Analytical Business Skills • Project Management •Learning on the Fly Skills • Interpersonal Savvy Skills • Building Effective Teams Skills • Problem Solving & Priority Setting Skills• Managerial Courage Skills• Strategic Agility & Action-Oriented Skills •

As a corporate executive with extensive fortune 100 corporate backgrounds both in personal and corporate business. Dr Awofolaju is a governance, risk management, and compliance guru, managed many organizations in the leadership capacity. His company is one of the leading Leadership Business Development, Strategic Programs in Tri-States Area. He is an American Board Certified Financial Forensic Examiner, Educator, American Board Certified Strategy Planner and also a Strategic Thinking Expert. An Applied Economist (Regional Development Economics)  Expert in forward-thinking unimaginable vision, identifying opportunities involving both start-up and existing businesses for sustainable growth.

He has been a top-ranked financial engineering expert; Business Resources & Leadership Development for educational industries in NY/NJ Regions for a decade and also leadership development expert for the fortune 100 companies where he worked as an award-winning leadership professional with over 17 years of management experience, demonstrated analytical skills. Dr. Awofolaju is a member of over twenty professional bodies amongst which are the American Association of Financial Forensic Fraud Examiners, the Nigerian Institute of Management, American Economic Association, and International Research for Income & Wealth, etc Author, a prolific writer, and columnist on contemporary issues.

Dr Awofolaju is a motivator and mentor with a collaborative, entrepreneurial management style with expertise in translating the big picture into specific business leadership strategies. Dr Awofolaju was a leading Corporate Executive (New York/New Jersey regions) for Verizon Wireless Telecommunication Company in America, where he worked for over 10 years before he started his own company. Dr Awofolaju managed the team of senior-level managers, and for his entire career he was the top performer in the region, as well as nationally. As a management expert, he has broken many business acquisition/merger records with several awards and recognitions and also attended Advanced Program at Harvard University Business School & Cornell University graduated from S.C Johnson Postgraduate Business School in Executive Leadership Development & Strategic Thinking/Planning. 

As an Co-Executive Chairman(Advisory Board) African Trade Business Center(ATBC) and Owner/Founder AmeriStrategy Inc-UsA, aided US/Africa Business enterprises with healthier job creation and maintenance in both the U.S.A & Africa, He promotes economic infrastructure and global competitiveness of U.S small businesses owned and operated by members of the minority and diaspora communities with trade

He served as a Senior consultant for Min. of finance & Debt management office (DMO) - FMoF - Diaspora Bonds of US$300million for sustainable infrastructural development and 

 Dr Awofolaju also managed over 500 high-performance driven team that generated over 450 millions of dollars in mergers & acquisitions when he worked as Regional Account Executive for British Petroleum Company for Tri- States ( PA/NJ/NY) - 1999 -2001. His strengths are his motivational and mentoring skills. A keen listener and creative thinker, Dr Awofolaju has been a consultant for individuals and businesses since 1991. He managed European financial powerhouse as President/CEO - Bayland Investments Company in Eastern Europe (1991- 1999), he discovered the executive keen interest in his experience and insight into maximizing peak performance. 

Dr Awofolaju developed the leadership development & training program that unleashes the potential of individuals or organization value adding by opening up creativity and recharging passion requisites for consistently perform at their best. Dr Awofolaju's focus resonates with others because it sheds light on why people do not perform to their potential even when they're talented and committed. Dr Awofolaju works with various CEO's, corporate executives be it in Wall Street, business professionals to athletes – professional basketball players. Dr Awofolaju’s wide range of clients illustrates how anyone can benefit from performance coaching. Dr Akin Awofolaju has been a Business consultant for individuals and businesses since 1991, when he discovered executives' keen interest in his experience and insight into achieving peak performance.

Chairman: State & Local Government  Nigerians in Diaspora: Nigeria Constitution Review Committee  
Honoree: Top 50 Nigerians in US/Canada commemorating 50yrs of Nigeria Independence @ United Nations -New York, NY -USA
Founding Chairman : NigeriaCEO Council - New York 2010
Steering Committee Member: Nigeria In Diaspora Constitution Review Committee ( 1999 Constitution Amendment Committee)
Alumni : Cornell University - Postgraduate  School: S.C Johnson School of Business, Itacha, New York - USA  
Member: Nigeria Global Forum - USA
Member of American Economic Association (AEA) -USA
Member: Association of Certified Fraud Examiners (ACFE)- USA 
Member of International Association for Research in Income and Wealth (IARIW)
President: Acumen Investment Club of  State of New Jersey
Board Member: Aberdeen Township Planning Board-New Jersey
Board Member: Mount Hope Housing Company over $300m investments/Borough of Bronx,NY