CBN’s aggressive monetary policy tightening will boost foreign investment – expert
Inflation is mainly as a result of excess liquidity in the system; too much money chasing fewer goods. There is so much money in circulation, money supply is estimated to be about N98 trillion.
A renowned economist, Prof. Ken Ife, says aggressive monetary policy tightening adopted by the Central Bank of Nigeria (CBN) will attract foreign portfolio investments to the country.
Ife, who is the Lead Consultant on Private Sector Development to the ECOWAS Commission, said this in an interview with the newsmen on Monday in Abuja.
He said that the apex bank’s. monetary policy decisions would also attract the needed dollar liquidity and stabilise the foreign exchange market.
NAN reports that the Monetary Policy Committee (MPC) of the CBN increased the country’s Monetary Policy Rate (MPR) by 600 basis points, from 18.75 percent to 24.75 percent, between February and March.
According to Ife, such an aggressive increase in the MPR makes the economy attractive to foreign portfolio investment.
“The higher you go, the more interested investors will be in investing in your economy.
“Aggressive tightening is the most appropriate response to the size of the challenge that we face right now,” he said.
He said that such tightening was also a panacea for the various inflationary trends that the Nigerian economy is experiencing.
“We are facing various types of inflation, like demand-pull inflation, cost-push inflation, and forex-related imported inflation.
“Inflation is mainly a result of excess liquidity in the system; too much money is chasing fewer goods. There is so much money in circulation that the money supply is estimated to be about N98 trillion.
“When the CBN tightens the rates, it sucks out the excess liquidity by offering Treasury bills. This will go a long way towards stemming inflation,” he said.
He said that the excess liquidity was also a major reason why some Nigerians chased after the dollar.
“It is the reason why people are speculating on the dollar. They use the excess money in circulation to buy dollars; they keep the dollar as a store of value.
“It is not just importers that are requiring the dollar. There are individuals that have a lot of Naira and are just trading with it.
“One of the ways to stop this is to tighten the rates,” he said.
The expert criticised the CBN for going after speculators in the foreign exchange market, like Binance.
He said that such a step would also stabilise the currency market and moderate inflationary growth.