₦airaland Forum

The textbook definition of Monetary Policy Rate is "the rate at which a central bank lends to commercial banks". By that definition, Nigeria's MPR under Emefiele wasn't 18.5% but 11.5%, & the current MPR isn't 18.75% but 15.75%, which is still low when inflation is 25.8%.

The idea behind using MPR to fight inflation is that when a central bank's MPR is jacked up, banks will lodge more excess funds with the CBN, leading to an automatic mopping up of excess liquidity (money).

It doesn't work in Nigeria because CBN says that they will only pay interest on N2b of excess funds per bank. That has limited the amount of excess naira that banks deposit with the CBN - i.e. the amount of naira that can be mopped up by MPR - to about N50b.

Before the limitation, in 2014, up to N705b was mopped up. So how can mopping up N50b affect inflation in 2023, when Nigerians have N21.7 Trillion naira in their bank accounts and the total money supply M2 is N64.89t?

We will need to mop up several trillions of naira from circulation to see an impact on inflation. If CBN removes the N2b limitation, this will happen and we will see the true effect of our 15.75% effective MPR.

It may need to be done in steps, so that we won't have a situation where the effect of over 1 year of interest hikes will be unleashed on the economy in a single moment. Maybe raise the cap to N50b/bank. Then N100b/bank. Then lift it completely.

So that MPR, the CBN's best anti-inflation tool, will work again. I call it "Unbreaking The MPR". Bankers call it removing the cap on the Standing Deposit Facility (SDF).

It will strengthen the naira and reduce inflation, guaranteed. I hope Dr Yemi Cardoso sees this somehow and takes action.

Lol

Seun should have been made the CBN Governor.

You see all these economic terms and terminologies, they hold no single water in the Nigerian style of voodoo economics.

If you knew how much of the country's actual net worth these bastards have looted and converted into Dollars and other super currencies to store in cash, you'd understand how worthless the over #60tn naira you quoted truly is.

They printed so much Naira from thin air to mop up enough Dollars such that no MPR or whatever can correct this anomaly.

The system has been corrupted beyond repair such that even the CBN heads up to the President all denominate their loot in Dollars to shore up against continuous devaluation of their roguish net worth.

them explain go tire without result.

Great idea.

this man...

So Seun has suddenly become an economist. He should better face his Nairaland forum and design ways to chisel out the ethnic jingoists trying to hijack it.

Seun:
The textbook definition of Monetary Policy Rate is "the rate at which a central bank lends to commercial banks". By that definition, Nigeria's MPR under Emefiele wasn't 18.5% but 11.5%, & the current MPR isn't 18.75% but 15.75%, which is still low when inflation is 25.8%.

The idea behind using MPR to fight inflation is that when a central bank's MPR is jacked up, banks will lodge more excess funds with the CBN, leading to an automatic mopping up of excess liquidity (money).

It doesn't work in Nigeria because CBN says that they will only pay interest on N2b of excess funds per bank. That has limited the amount of excess naira that banks deposit with the CBN - i.e. the amount of naira that can be mopped up by MPR - to about N50b.

Before the limitation, in 2014, up to N705b was mopped up. So how can mopping up N50b affect inflation in 2023, when Nigerians have N21.7 Trillion naira in their bank accounts and the total money supply M2 is N64.89t?

We will need to mop up several trillions of naira from circulation to see an impact on inflation. If CBN removes the N2b limitation, this will happen and we will see the true effect of our 15.75% effective MPR.

It may need to be done in steps, so that we won't have a situation where the effect of over 1 year of interest hikes will be unleashed on the economy in a single moment. Maybe raise the cap to N50b/bank. Then N100b/bank. Then lift it completely.

So that MPR, the CBN's best anti-inflation tool, will work again. I call it "Unbreaking The MPR". Bankers call it removing the cap on the Standing Deposit Facility (SDF).

It will strengthen the naira and reduce inflation, guaranteed. I hope Dr Yemi Cardoso sees this somehow and takes action.

That is the problem we have in Nigeria, just the way successive government have been appointing commercial bankers to head the central bank. The MPR is just one tool used in curbing inflation, it depends on what type of inflation.
Nigeria needs experts in it fiscal and monetary institutions and not just bankers.
First of all, CBN have to define the type of inflation we are experiencing and find ways to curb it, our inflation is a cost push type of inflation, believe you me, inflation in Nigeria for the past 8 years has been caused by increase in the cost of production, do we need to adjust MPR to solve this? The answer is no. There are other measures we can use to control this.

Inflation, poor exchange rate and unemployment are few macro economic problems affecting Nigeria at the main time, the policy makers know how to tackle them, but they will not, because they are seriously benefiting from it. Economic recovery is not difficult, Nigeria policy makers do not want our economy to recovery that is the truth.

The MPR is only a tool to manage inflation. Similiar to managing an illness versus curing said illness. The more the illness grows stronger the more difficult it is to manage it.

Every key indicator that triggers inflation is very much active in Nigeria. We need to deal with inflation at the root by tackling these key indices.