Dipeolu, El-Rufai, Emefiele and the Monetary Policy Rate question

Dipeolu, El-Rufai, Emefiele and the Monetary Policy Rate question
August 14 09:53 2016

By Abdullahi M. Gulloma

The President, Muhammadu Buhari, Wednesday, administered oath of office on four of his special advisers and one permanent secretary. The event took place at the Presidential Villa in Abuja.

Those sworn-in are Special Adviser to the President on Social Investment, Mrs. Maryam Uwais; and Special Adviser to the President on Political Matter, Senator Babafemi Ojudu; Special Adviser to the President on Economic Matters, Dr. Adeyemi Dipeolu and the Special Adviser to the President on Planning, Tijjani Abdullahi. The only permanent secretary sworn-in was Ambassador Rafiu Enikanolaye.

Of course, among the advisers, the appointment of Dr Adeyemi Dipeolu stands out, not because the other appointments are not important or the appointees are undeserving, far from that.

Simply said, Dipeolu’s appointment came at a time Nigerians are accusing the Buhari-led administration of failure to grow the nation’s economy, from where it met it.

In fact, some uncharitable Nigerians claim and, to some extent, they were proved right through the implementation of some unfriendly and controversial economic policies, that this administration lacks the wherewithal to reposition the economy.

Of course, the President does not know all. He does not claim so. We don’t expect him to. But, agreeing with what former President Olusegun Obasanjo said, Buhari is not adept in matters dealing with economy as he is at home with security. He proved that by dealing, albeit decisively, with the Boko Haram insurgents while the nation’s economy continues to stumble from one crisis to the other with the latest being the Central Bank of Nigeria (CBN) to increase the Monetary Policy Rate (MPR) from 12 per cent to 14 per cent.

Before the increase, banks lent money to customers at an average of 25 per cent, but with the new rate, they have raised their lending rates to between 28 and 30 per cent. The MPR is the anchor rate at which the CBN lends to Deposit Money Banks (DMB) to boost the level of liquidity in the banking system and the economy.

If the apex bank wants to increase the level of liquidity in the economy, it reduces the MPR, and does otherwise when it wants to restrict money supply. Unfortunately, with Nigeria’s current MPR, argues the Governor of Kaduna State, Nasir El-Rufai,  “only traders and drug dealers can make money at this interest rate.”

The argument put forward by the CBN Governor, Mr. Godwin Emefiele, that in taking the decision to increase the MPR, the CBN was faced with two policy choices of whether to hold or reduce the rate to stimulate growth or increase it to curb inflation, holds little or no water. And when considered from the standpoint that the primary mandate of the CBN is to maintain price stability, the CBN governor appears to be a straitjacket and inflexible policy maker.

As Nasir El-Rufai and others have serially pointed out, the argument made by the CBN that the rate of interest must always be above the inflation rate is flawed. The argument, with respect to its proponents, obviously cannot grow the country’s economy.

Instead, the country should always decide and implement the interest rate that would stimulate business activities in the economy. This is a more sensible thing to do.

In the UK, “the rate of inflation is not two per cent or one per cent, it is seven to eight per cent” El-Rufai said. “But lending rate is at one per cent. I think they cut the interest rate last week.”

This debate, espoused by governors of Kaduna and CBN, are reasons that made swearing-in of the new Economic Adviser to the President timely and critical to development of the nation’s economy.

While Dr Dipeolu is welcome onboard, it is the hope of Nigerians that he will, as expected, steer the thinking of the President to the peoples path and interest and make him stand up to the unprogressive line of thought championed by the bankers led by Emefiele.