April 6 (Lagos) -
Monetary Policy Committee of the Central Bank of Nigeria left the key benchmark
lending rate at 14% this week. While calls to reduce the interest rates came
from different quarters with vested interests, we must commend the MPC for not making any change which
could destabilize the economy at this moment.
Let us not forget that
interest rates affect currency exchange rates directly and if interest rates
are reduced, it has a weakening effect on the Country's currency.
In the United States the
US Federal Reserve increased their benchmark interest rate last month and is
planning to do so at least two more times this year. That would lead to
strengthening of the US Dollar against other currencies.
So for Nigeria's MPC to
even consider reducing interest rate at this point could send the Naira into
another tailspin and that is something we cannot risk. The economy of Nigeria
has already suffered enough due to the flip-flops of the MPC since this government
came to power.
Let us go back to
November 2015 and subsequently Q1 2016 when MPC cut rates and increased rates
in a massive failure of Policy.
In late 2015, the MPC
had reduced the interest rates while led to immediate destruction of Naira value
against the US Dollar. While there were other reasons also for Naira to hit
rock bottom, the decision to cut interest rate at that November 2015 meeting
started the effect which led to economic destruction and erosion of buying
power of Nigerian consumers.
Few months later, the
MPC met again and decided to increase the rate back. In those 2-3 months the
damage to the economy of Nigeria was immense and can be felt till now. The flip
flop cost Nigerian consumers dearly. Products and services became much more
expensive. Naira hit levels that no one expected at some point crossing 500 to
1 dollar in parallel market. Nigerians travelling abroad could not use their
So coming back to
present. Let us not fix something which is not broken.
Now is not the time to
reduce interest rates and let us hope the MPC does not do so for the sake of
upcoming elections in 2019.
let us wait for Naira to
appreciate around N 220 to 1 Dollar before the MPC should consider taking steps
which would lead to weakening of the Naira.
It is possible for Naira
to gain to those levels because of the current Crude oil prices. If the
CBN decides that from next week, they will sell Dollar at 220, that will do
After that they can
surely cut interest rates.
Let us change for the
better and not worse.
Also this week marks 50 years since Martin Luther King Jr was assassinated in USA. We salute the Great leader for his sacrifices that enable us to live in an equal world today.
easykobo.com on Friday, April 6 2018 from Lagos, Nigeria