The Central Bank of Nigeria (CBN) Tuesday resorted to traditional methods of tackling the current rise in the cost of goods by raising interest rates (MPR) as well as the Cash Reserve Ratio (CRR) of banks. This move is indicative of the fact that the CBN has run out of ideas on how to move the economy forward.

At the end of the bank’s Monetary Policy Committee (MPC) meeting Tuesday, the CBN resolved to raise the Monetary Policy Rate (MPR) otherwise known as the interest rate, to 12 per cent from 11 per cent as well as bank’s Cash Reserve Ratio (CRR) to 22.5 per cent from 20 per cent.

This move is seen by analysts as a step in the wrong direction as it would greatly reduce the ability of entrepreneurs to expand investments, thereby contracting economic activities, thus worsening Nigeria’s economic outlook. The trickle-down effect of this is that the man on the street, who is already feeling the effects of the fall in government expenditure due to falling oil prices, is expected to suffer some more because net private investments will contract with a rise in interest rate.

Manufacturing firms who are already dealing with increased cost of powering their plants due to non-availability of public power, will now find it hard to expand production because it will be more expensive to obtain funds needed to replace aging machines and also replenish their stock of raw materials. This would negatively affect employment rate because, going forward, firms would stop hiring, and may even reduce their workforce in order to stay in business.

Experts believe that rather than contracting investments by raising cost of funds and reducing the quantity of funds in circulation, the CBN should ought to expand agricultural output by giving farmers more access to funds, enhance the ability of local manufacturers to expand export through increased access to cheap funds, as well as encouraging financial institutions to fund more SMEs.

Source.... http://lazyreporta.com/cbn-tackles-inflation-raising-mpr-crr/

Cc: Mynd44, Lalasticlala

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