The Monetary Policy Committee held its meeting at Abuja for policy rate decision and left the interest rate at 11 percent while they refrained from further devaluation of naira.
But are their decisions prudent?
A reasonable number of financial observers and economists believe that The Monetary Policy Committee is living in alternative planet. With the new normal of failing oil price and limited foreign reserve, the present value of naira is not sustainable and 11 percent interest rate cannot be a prudent monetary policy to control the rising inflation.
Godwin Emefiele , Governor of Central Bank of Nigeria (CBN) said, “The current episode of lower oil prices is expected to remain over a very long period. Consequently, it is imperative to brace up for a longer period of low government revenues from oil sources which will necessitate hard and uncomfortable choices,” but his analysis is not proportional to the action taken by him and his colleagues at Monetary Policy meeting
One thing that Nigerians cannot afford to do at this time is to be jittery, but the present economic outlook has a reason for one to bite his nails. The nosedive of oil price is precariously impacting the value of naira, interest rate and wellbeing of Nigerians.
The dollar exchange rate on black market was hitting 305 naira last week which is making mockery of country’s official band rate at 197 to 199 per dollar adopted by Godwin Emefiele’s Central Bank in 2015.
With the rigid currency control adopted by Nigeria’s Reserve Bank, the paramount task becomes the defense of naira from aggressive speculators. But the war chest of the country is not adequately fortified to slow down the weakening naira. With the foreign reserve standing at $28.4bn the task of fabricating a bulwark around naira becomes permeable, elusive and unsustainable.
Nigeria’s economy is not diverse and depends on oil export for its 90 percent foreign exchange. Such economic arrangement together with falling oil price squeezes economic wellbeing of average Nigerian and triggers inflationary trends especially on the agricultural products. The inflation rate surged to 9.6 percent in the last quarter of last year. As the basic price of staple foods especially garri, yams and rice increase, the inflation rate of first quarter of this year will likely to surge higher.
With rising inflation it will be prudent to tighten monetary policy and mopped up liquidity which maybe contrary to present state of the economy. Such a move will entails higher interest rate which is not conducive for domestic economic growth and may contribute to the strangulation of liquidity at the monetary base. And for this precise reason the Central Bank of Nigeria left the interest rate at 11 percent to liquefy the monetary base and encourage producers to seek credit and increase economic growth.