₦airaland Forum

jpphilips:
Lower interest rates will lower cost of manufacturing faster than Lower taxes. I am not sure there is any company in Nigeria whose Local tax peaks its recurrent expenditure, Nigerian companies that cook their books, bribe tax authorities?
Perhaps you should ask Ben Bruce why he has been unable to repay the 11 billion naira debt he has with Union bank, cost of funds is not a joke in Nigeria, trust me when i tell you that, even discounting invoice rate in Nigeria is amongst the highest in the world.

"High" interest rates in Nigeria are a product of high inflation. If you reduce interest rates, the increase in the rate of inflation will usually offset the reduced interest rates (in reality, banks will not pass on the reduced interest rates to borrowers).

The reason why I put the term high in inverted comma in the above comment is that a central bank's interest rate is high if the rate is higher than the Wicksellian natural rate (the rate at which inflation growth stabilises). Interest rates in Nigeria are lower than the rate of inflation, i.e., the real rate of interest rates are negative. Hence, the CBN's interest rates are actually stimulative and too low given the rate of inflation.

People keep saying that Nigeria is suffering from a "lack of money" and that we need to inject more money into the system. What Nigeria is actually suffering from is a supply shock (lower forex inflow) which is causing high levels of inflation. The average Nigerian is suffering today from the resulting increase in the costs of living - this is a crucial distinction we need to bear in mind. So increasing the money supply (the supply of Naira without increasing the supply of dollars) in the midst of an inflation spiral will make matters worse! This is why when months ago when people were saying that once the 2016 budget is passed, we will see an improvement in the economy, I thought that was hilarious. Since the budget was passed- injecting more money into the economy - things have gotten worse. Think of it, at the current rate of inflation vis a vis the CBN's interest rates; the manufacturers selling prices are increasing faster than their borrowing costs.The CBN's interest rates is not what is deterring investment, it is the inflation/currency spiral and injecting more money is like a dog chasing its tail. The more you inject, the higher the rate of inflation.

The search for lower interest rates reflects the penchant Nigerians have for looking for shortcuts and easy solutions (a magic bullet). But as economists say, there is no free lunch in economics. What policy makers need to do first is to stop this currency/inflation spiral. In fact, the FG is better off implementing fiscal austerity. I do not know of any country that got out of a currency crisis by lowering interest rates. People are confusing a supply-side shock (as in Nigeria) with a Western-style recession which is a demand-side shock. The difference is that in a demand-side shock, the rate of inflation collapses and the economy faces deflation (price of goods fall). This is what happened following the 2008 financial crisis. To address this, policy makers had to reduce interest rates and when that proved insufficient, they did fiscal stimulus and quantitative easing (arguably still insufficient).

Nigeria has the opposite problem and we should be careful not to further impoverish ourselves: I recommend that people read more about currency crises (google and read about first and second generation currency crises if you have the time)

PS: To summarise: High inflation is driving hardship and this is driven by our currency crisis - disequillibrium between the demand for dollars and the supply of Naira. If you increase the latter (by cutting interest rates for instance), you increase demand for the former. You need to reduce demand for dollars and or increase dollar supply first. Talk about solving our problems by pumping more naira is dangerous wishful thinking.

4Play:
"High" interest rates in Nigeria are a product of high inflation. If you reduce interest rates, the increase in the rate of inflation will usually offset the reduced interest rates (in reality, banks will not pass on the reduced interest rates to borrowers).

The reason why I put the term high in inverted comma in the above comment is that a central bank's interest rate is high if the rate is higher than the Wicksellian natural rate (the rate at which inflation growth stabilises). Interest rates in Nigeria are lower than the rate of inflation, i.e., the real rate of interest rates are negative. Hence, the CBN's interest rates are actually stimulative and too low given the rate of inflation.

People keep saying that Nigeria is suffering from a "lack of money" and that we need to inject more money into the system. What Nigeria is actually suffering from is a supply shock (lower forex inflow) which is causing high levels of inflation. The average Nigerian is suffering today from the resulting increase in the costs of living - this is a crucial distinction we need to bear in mind. So increasing the money supply (the supply of Naira without increasing the supply of dollars) in the midst of an inflation spiral will make matters worse! This is why when months ago when people were saying that once the 2016 budget is passed, we will see an improvement in the economy, I thought that was hilarious. Since the budget was passed- injecting more money into the economy - things have gotten worse. Think of it, at the current rate of inflation vis a vis the CBN's interest rates; the manufacturers selling prices are increasing faster than their borrowing costs.The CBN's interest rates is not what is deterring investment, it is the inflation/currency spiral and injecting more money is like a dog chasing its tail. The more you inject, the higher the rate of inflation.

The search for lower interest rates reflects the penchant Nigerians have for looking for shortcuts and easy solutions (a magic bullet). But as economists say, there is no free lunch in economics. What policy makers need to do first is to stop this currency/inflation spiral. In fact, the FG is better off implementing fiscal austerity. I do not know of any country that got out of a currency crisis by lowering interest rates. People are confusing a supply-side shock (as in Nigeria) with a Western-style recession which is a demand-side shock. The difference is that in a demand-side shock, the rate of inflation collapses and the economy faces deflation (price of goods fall). This is what happened following the 2008 financial crisis. To address this, policy makers had to reduce interest rates and when that proved insufficient, they did fiscal stimulus and quantitative easing (arguably still insufficient).

Nigeria has the opposite problem and we should be careful not to further impoverish ourselves: I recommend that people read more about currency crises (google and read about first and second generation currency crises if you have the time)

PS: To summarise: High inflation is driving hardship and this is driven by our currency crisis - disequillibrium between the demand for dollars and the supply of Naira. If you increase the latter (by cutting interest rates for instance), you increase demand for the former. You need to reduce demand for dollars and or increase dollar supply first. Talk about solving our problems by pumping more naira is dangerous wishful thinking.

The CBN's interest rate (MPR) is not accessible to you and I and other businesses. we deal with the banks who have doubled the MPR, I got 33% last week.
If you look at it critically, does it not bother you that the banks borrow at 14% and give us at 33%

CBN's lower rates line the pockets of the banks not individuals who actually use the funds to initiate a value chain for the economy that is where I am convinced the CBN is in cohort with the banks.

Nigeria needs to export more to quell her forex shortages, how is it gonna be possible when the private sector that is supposed to make the investment get funds at high interest rates?

You want companies to export on one hand, on the other, they are crippled with high interest rates. Who then will make the investments that will spur export, cash strapped Government?

Remember that even if the Government doesn't earn more forex, trade will balance if we can produce most of the commodities that currently mount pressure on our scarce forex.

Inflation that you referenced was not caused by excess liquidity, that is the lie that proves the incompetence of Emiefele, inflation set in when the goods disappeared due to forex shortages and high import duty.

In the absence of Importation, what other source of goods do you have if not local manufacturing?

inflation works on two parameters, money and goods, so far Emiefele has mopped up enough Liquidity that inflation should drop yet it is going up, the answer lies with the other factor which is goods.

An importer that used to import 40 containers before now import just 20, due to forex shortages and high import duty. That is what is causing this inflation. To make up for the goods we lost, we must use low interest rates to spur manufacturing.
That approach will achieve three results
1 we will have more goods
2 there will be less pressure on our scarce forex.
3.Manufacturing will create employment.

If Emiefele will acknowledge this, the economy will bounce back.
I love your analysis though. but I strongly disagree with the obvious.

jpphilips:
The CBN's interest rate (MPR) is not accessible to you and I and other businesses. we deal with the banks who have doubled the MPR, I got 33% last week.
If you look at it critically, does it not bother you that the banks borrow at 14% and give us at 33%

CBN's lower rates line the pockets of the banks not individuals who actually use the funds to initiate a value chain for the economy that is where I am convinced the CBN is in cohort with the banks.

Nigeria needs to export more to quell her forex shortages, how is it gonna be possible when the private sector that is supposed to make the investment get funds at high interest rates?

You want companies to export on one hand, on the other, they are crippled with high interest rates. Who then will make the investments that will spur export, cash strapped Government?

Remember that even if the Government doesn't earn more forex, trade will balance if we can produce most of the commodities that currently mount pressure on our scarce forex.

Inflation that you referenced was not caused by excess liquidity, that is the lie that proves the incompetence of Emiefele, inflation set in when the goods disappeared due to forex shortages and high import duty.

In the absence of Importation, what other source of goods do you have if not local manufacturing?

inflation works on two parameters, money and goods, so far Emiefele has mopped up enough Liquidity that inflation should drop yet it is going up, the answer lies with the other factor which is goods.

An importer that used to import 40 containers before now import just 20, due to forex shortages and high import duty. That is what is causing this inflation. To make up for the goods we lost, we must use low interest rates to spur manufacturing.
That approach will achieve two results
1 we will have more goods
2 there will be less pressure on our scarce forex.

If Emiefele will acknowledge this, the economy will bounce back.
I love your analysis though. but I strongly disagree with the obvious.

If as you acknowledge the MPR does not reflect the real cost of lending (with banks lending at circa 33% when the MPR is 14%), then you effectively agree with the gist of my post: the CBN cutting the MPR would not improve economic conditions in Nigeria as the reduced rate would lead to the increased money suppy being used for currency speculation/hedging.

What is driving economic deterioration in Nigeria is inflation: banks would not be lending at 33% if inflation was circa 2%. Cutting the MPR will not lower inflation, to the contrary. If inflation is say at 30% (the NBS's inflation stats are probably an underestimate), no bank will lend to you at 14% as their lending rate has to offset the loss of the naira's purchasing power. It will be irresponsible for the banks to lend at rates which are a substantial discount to the rate of inflation - their very survival and that of the economy will be imperilled.

The debate in this thread is somewhat pointless as people are confusing the CBN's benchmark rate with the interest rates charged businesses in Nigeria. The latter is driven by inflation, reducing the former would have little or no effect on the latter. You may have in mind that the government - perhaps the CBN - should regulate or mandate lower lending rates to businesses but as with most government price-fixing diktats, it would backfire spectacularly causing greater scarcity of bank lending.

I understand the connumdrum about a lack of investment in Nigeria, you seem to think that inflation in Nigeria can be curtailed by producing more goods locally. However, underinvestment in Nigeria is a supply-side constraint reflecting the general business environment: poor infrastructure (electricity, transportation,e.t.c), weak human capital, insecurity, inadequate regulatory environment, e.t.c. The CBN's monetary policy tool is a crude and ineffectual instrument to solve a problem of underinvestment which has gone on for decades. As much as I disdain Emefiele, banging on about the MPR as a solution to our long-running problem of weak local manufacturing or investment in general is rather misguided. Improving the investment/manufacturing environment in Nigeria is a long-term project requiring major policy reforms, the CBN's benchmark rates (the MPR) is not the policy instrument that will help.

This discussion also reveals an underappreciation of how markets work; if there was a viable business in lending to businesses at below present market rates, investors/banks would lend at lower rates to gain market share from other banks. Further, if there was a viable business in producing goods locally, money will find its way into the manufacturing sector in Nigeria (bypassing the banking sector if need be).

I am also not sure why people who go on about the cost of lending in Nigeria do not realise that the FG affects the costs of lending. The FG by announcing and proceeding with record borrowing plans in 2016. 2.2 trillion naira at the last count, is driving the costs of lending up. This is because the FG's borrowing - by adding to the demand for credit - increases the cost of credit. When the FG competes for credit with the private sector, the FG wins hands down driving up the cost of credit and "crowding out" the private sector. This is an FG that is embarking on oil exploration near Lake Chad and purportedly spent over a billion on the Change begins with me campaign (not to mention the billions wasted on the presidential fleet or the National Assembly).

For now, we need to curtail inflation which is being driven by our currency crisis. Cutting the MPR would make the currency crisis worse. People are forgetting that the CBN cut the MPR to 11% in November last year. Look what happened below:

Your posts are an oasis of real economic knowledge, backed by good sense, in the desert of ignorance, blind partisanship and wishful thinking that is Nairaland. Keep up the good work!

4Play:
If as you acknowledge the MPR does not reflect the real cost of lending (with banks lending at circa 33% when the MPR is 14%), then you effectively agree with the gist of my post: the CBN cutting the MPR would not improve economic conditions in Nigeria as the reduced rate would lead to the increased money suppy being used for currency speculation/hedging.

What is driving economic deterioration in Nigeria is inflation: banks would not be lending at 33% if inflation was circa 2%. Cutting the MPR will not lower inflation, to the contrary. If inflation is say at 30% (the NBS's inflation stats are probably an underestimate), no bank will lend to you at 14% as their lending rate has to offset the loss of the naira's purchasing power. It will be irresponsible for the banks to lend at rates which are a substantial discount to the rate of inflation - their very survival and that of the economy will be imperilled.

The debate in this thread is somewhat pointless as people are confusing the CBN's benchmark rate with the interest rates charged businesses in Nigeria. The latter is driven by inflation, reducing the former would have little or no effect on the latter. You may have in mind that the government - perhaps the CBN - should regulate or mandate lower lending rates to businesses but as with most government price-fixing diktats, it would backfire spectacularly causing greater scarcity of bank lending.

I understand the connumdrum about a lack of investment in Nigeria, you seem to think that inflation in Nigeria can be curtailed by producing more goods locally. However, underinvestment in Nigeria is a supply-side constraint reflecting the general business environment: poor infrastructure (electricity, transportation,e.t.c), weak human capital, insecurity, inadequate regulatory environment, e.t.c. The CBN's monetary policy tool is a crude and ineffectual instrument to solve a problem of underinvestment which has gone on for decades. As much as I disdain Emefiele, banging on about the MPR as a solution to our long-running problem of weak local manufacturing or investment in general is rather misguided. Improving the investment/manufacturing environment in Nigeria is a long-term project requiring major policy reforms, the CBN's benchmark rates (the MPR) is not the policy instrument that will help.

This discussion also reveals an underappreciation of how markets work; if there was a viable business in lending to businesses at below present market rates, investors/banks would lend at lower rates to gain market share from other banks. Further, if there was a viable business in producing goods locally, money will find its way into the manufacturing sector in Nigeria (bypassing the banking sector if need be).

I am also not sure why people who go on about the cost of lending in Nigeria do not realise that the FG affects the costs of lending. The FG by announcing and proceeding with record borrowing plans in 2016. 2.2 trillion naira at the last count, is driving the costs of lending up. This is because the FG's borrowing - by adding to the demand for credit - increases the cost of credit. When the FG competes for credit with the private sector, the FG wins hands down driving up the cost of credit and "crowding out" the private sector. This is an FG that is embarking on oil exploration near Lake Chad and purportedly spent over a billion on the Change begins with me campaign (not to mention the billions wasted on the presidential fleet or the National Assembly).

For now, we need to curtail inflation which is being driven by our currency crisis. Cutting the MPR would make the currency crisis worse. People are forgetting that the CBN cut the MPR to 11% in November last year. Look what happened below:

Lol.

So all the village idiots and voodoo economists who supported the disastrous floating and are in the habit of throwing around vacuous economic terms are back again to support the disastrous high interest rates.

Bunch of clowns.

From the Nairaland's Motley Crew of Ignoramuses, Bovine intellect and Extreme Crassness: I present to you the Shyster also known as Shymmex. Note the journey of argumentative incoherence:

1) Nigeria is like Russia
2) Nigeria should deal with its currency-crisis-driven recession by cutting interest rates. Though Russia - very much like Naija according to 1) above, dealt with its currency crisis partly by aggressively hiking interest rates from sub-6% to 16.5% (including a hike of 6 percentage points overnight).
3) Floating policy adopted in late June 2016 is disastrous - the corollary, the fixed rate policy which applied from January to June (a period in which the government notes Nigeria plunged into its first recession in 2 decades) is obviously much better!

Here is the Shyster 2 days ago:

Shym3xx:
The Russian economy is very similar to the Nigerian economy albeit there are nuances. Russia is also heavily dependent on gas.

http://uk.businessinsider.com/russia-is-facing-a-full-blown-currency-crisis-2014-11

Here is news of Russia's descent into a recession and currency crisis in 2014:

Panic washed over Russia Tuesday as the value of the ruble dropped as much as 19 percent in one day, with Russians reportedly flooding currency exchange centers and retailers as they tried to swap their cash for anything that might have more value. Russian stocks dropped amid concerns that business leaders would pull deposits from banks and as the cost of imports soared. "The economy is probably in recession and that will accelerate from here, and there are possible risks of a deposit run,” Anton Khmelnitski, director of EC Elbrus Capital Investments in Kiev, told Bloomberg.

http://www.ibtimes.com/russia-ruble-crisis-2014-potential-economic-collapse-panic-over-future-banking-system-1760125

Here is news of Russian interest rate policy response:

After the central bank dramatically raised interest rates by 6.5 percentage points to 17 percent overnight, Russia has given up any pretence that it is not in the grip of a currency crisis.

http://blogs.reuters.com/macroscope/2014/12/16/russian-currency-crisis/

Here is the Shyster implying that the exchange rate policy in Nigeria which applied when Nigeria plunged into recession is better:

Shym3xx:
Lol.
So all the village idiots and voodoo economists who supported the disastrous floating and are in the habit of throwing around vacuous economic terms are back again to support the disastrous high interest rates.

Bunch of clowns.

Here is a graphical representation of the Russian interest rate policy hike (the Shyster lauded the Russians for cutting rates this year not knowing that this was done after the currency crisis was brought under control following the rate hike and that rates are still 4 percentage points higher than before the recession):

4Play:
From the Nairaland's Motley Crew of Ignoramuses, Bovine intellect and Extreme Crassness: I present to you the Shyster also known as Shymmex. Note the journey of argumentative incoherence:

1) Nigeria is like Russia
2) Nigeria should deal with its currency-crisis-driven recession by cutting interest rates. Though Russia - very much like Naija according to 1) above, dealt with its currency crisis partly by aggressively hiking interest rates from sub-6% to 16.5% (including a hike of 6 percentage points overnight).
3) Floating policy adopted in late June 2016 is disastrous - the corollary, the fixed rate policy which applied from January to June (a period in which the government notes Nigeria plunged into its first recession in 2 decades) is obviously much better!

Here is the Shyster 2 days ago:


http://uk.businessinsider.com/russia-is-facing-a-full-blown-currency-crisis-2014-11

Here is news of Russia's descent into a recession and currency crisis in 2014:


http://www.ibtimes.com/russia-ruble-crisis-2014-potential-economic-collapse-panic-over-future-banking-system-1760125

Here is news of Russian interest rate policy response:


http://blogs.reuters.com/macroscope/2014/12/16/russian-currency-crisis/

Here is the Shyster implying that the exchange rate policy in Nigeria which applied when Nigeria plunged into recession is better:

Here is a graphical representation of the Russian interest rate policy hike (the Shyster lauded the Russians for cutting rates this year not knowing that this was done after the currency crisis was brought under control following the rate hike and that rates are still 4 percentage points higher than before the recession):

Lol.

The illiterate homoerotic numbnut who does for.eplay on himself and Iweala the utter failure's biggest fan boy is back again. You're a gift that keeps on giving. And this is the last reply you'll get from me.

1). I bet you ignored the aspect of my post where I cited that there are "nuances" between Nigeria and Russia because you're an obtuse scammer with selective reasoning in voodoo economics. The same way you ignored the part of my posted which showed that the US reduced interest rates to stimulate its economy due to recession and that's contrary to what your Emefiele posited here: "Emefiele said the Federal Government should toe the line of other developed countries such as the United States that adjusted its tax policy during the period of economic recession to stimulate consumer demand."

Now back to Russia: why did it increase its interest rates in 2014? Was it to stabilise its economy and reduce inflation - or for a short-term gamble aimed at keeping the ruble afloat due to sanctions, and capital flight while everything else is being sacrificed?

Forbes has the answers:

Russia Raises Interest Rates To 17% To Defend Ruble; Might Work, Might Not

Russia was forced to ramp up interest rates on Tuesday in a desperate attempt to rescue its ruble while factory activity in China shrank for the first time in seven months, marking an increasingly turbulent end to the year for the global economy.

The Russian currency has lost half its value since President Vladimir Putin first sent forces into Ukraine, setting off a chain of events that the Kremlin can no longer control.

“This is being driven by pure fear. We have crossed a line and the crisis is now self-feeding,” Chris Weafer, from Macro Advisory in Moscow, said before the rate rise. “The central bank must intervene immediately with a great deal of money to overwhelm the sense of panic.”

http://www.forbes.com/sites/timworstall/2014/12/16/russia-raises-interest-rates-to-17-to-defend-ruble-might-work-might-not/#1bdd9e5572a0

2). Now that the sanctions have been eased and all the sanctions should be lifted by the end of the year, with the country still in recession - what did Russia do in a proactive way to shift focus away from the artificial padding of the ruble, to its economy ?

Russia's economy has been in recession for 18 months

The country's economy was 0.6% smaller in the second quarter of 2016 than the same period last year, according to official data published on Thursday.

But there is a glimmer of hope for Russians who have seen their living standards suffer over the last year and a half -- the pace of the slowdown is starting ease. The economy shrank by 1.2% in the first quarter, following a 3.7% plunge in 2015.

The IMF expects Russian economy to shrink 1.2% this year, before returning to growth next year.

http://money.cnn.com/2016/08/11/news/economy/russia-economy-recession-six-quarters/

CNBC business has the answers:

Russian central bank cuts interest rate further—down to 10 percent

Russia's central bank cut interest rates on Friday amid what analysts called more "aggressive" calls for monetary easing.

The central bank cut its key interest rate by 50 basis points to 10 percent on Friday, saying that it made the decision "given the inflation slowdown, in line with the forecast, decrease in inflation expectations and unstable economic activity."
The move was widely expected by economists.

Pressure has grown on the central bank for more monetary easing, but analysts think the central bank will continue its "gradual rate cut strategy" in order to stabilize the rate of inflation to 4 percent by 2017 (it stood at 6.6 percent, as of September).

http://money.cnn.com/2016/08/11/news/economy/russia-economy-recession-six-quarters/

4). And your floating policy of an utter weak currency in a dead economy heavily dependent on imported goods that has plunged the naira to an exchange rate of almost N500 to $1 is the answer, yes? I thought you said the naira won't fall beyond £250 to $1. How come it's almost N500 to $1 within three months and it's still falling? You're a circus clown who dwells on throwing useless economic terms around.

Russia got into the recession due to economic sanctions and the sanctions specifically targeted the ruble, hence the need to defend the ruble at all cost at the expense of its economy. And now that the sanctions are being eased due to how international relations between Russia and the west have improved lately - the focus has shifted back to the country's economy which has been in the doldrums for over 18 months.

However, that didn't happen with Nigeria and the naira wasn't targeted by anyone. The country's biggest problems are its economic woes and it started with the last administration and the failed policies of this administration exacerbated it. And to solve the problem - the economy has to be the priority. I bet you won't understand something as simple as that since you dwell mostly cramming junk, with garbage in and garbage out, like a robot.

P.S: look at the sources I referenced: Bank of England headed by the supreme Mark Carney the one with the magic touch, Forbes, ABC business, CNBC business, and CNN business - compared to the rags fo.replay referenced: shitty IBtimes, businessinsider, and a blog on reuters. Hysterical. Voodoo economist.

The cretinous Shyster at his benighted best. Lets work through the argument, though knowledge is wasted on the vermin.

1) A country in the midst of a currency crisis which is causing a big uptick in inflation cannot afford to cut interest rates. Such a country has to stabilise the currency first. The Shyster's Forbes link notes that Russia first had to stabilise the currency first via aggressive hikes in interest rates. The Shyster fails to note that Russia's interest rates are still 40% higher today than before the recession. For another example of a country dealing with a currency crisis; note the second image below showing the sharp hikes in South Korea's interest rates following the currency crisis of 1997.

2) There is a big distinction between a Western style "demand-side" recession and the Nigerian recession. In a demand-side recession, there is no currency crisis (sometimes like in the US and Japan, the currency strenghtens) and the rate of inflation falls significantly. Note the first image below showing a sharp fall in the US inflation rate following the 2008 financial crisis. A demand-side calls for aggressive rate cuts (monetary easing in general) to stop the economy falling into a deflationary spiral.

3) Guess what? You have already tried your interest rate cuts implemented by the phenomenally hapless Emefiele. The CBN cut rates in November 2015 and within a month, the country plunged into recession and the rate of inflation spiked higher. See third image below:

I will make a few other points: I know you are man of irreprresible imbecility but even you must realise that Nigeria still does not have a floating exchange rate regime. There is no parallel market in a free float so citing the black market exchange rate is a contradiction that even your fecal-brained existence must realise is inconsistent with a floating rate regime.

Finally: you are such a gratuitously mendacious oaf that you have to attribute predictions to me I have never made. What is this incoherent ramble below and please draw my attention to where I predicted currency movements as you claim below:

And your floating policy of an utter weak currency in a dead economy heavily dependent on imported goods that has plunged the naira to an exchange rate of almost N500 to $1 is the answer, yes? I thought you said the naira won't fall beyond £250 to $1. How come it's almost N500 to $1 within three months and it's still falling? You're a circus clown who dwells on throwing useless economic terms around.

This Emefiele dude is an incompetent fool

4Play:
If as you acknowledge the MPR does not reflect the real cost of lending (with banks lending at circa 33% when the MPR is 14%), then you effectively agree with the gist of my post: the CBN cutting the MPR would not improve economic conditions in Nigeria as the reduced rate would lead to the increased money suppy being used for currency speculation/hedging.

What is driving economic deterioration in Nigeria is inflation: banks would not be lending at 33% if inflation was circa 2%. Cutting the MPR will not lower inflation, to the contrary. If inflation is say at 30% (the NBS's inflation stats are probably an underestimate), no bank will lend to you at 14% as their lending rate has to offset the loss of the naira's purchasing power. It will be irresponsible for the banks to lend at rates which are a substantial discount to the rate of inflation - their very survival and that of the economy will be imperilled.

The debate in this thread is somewhat pointless as people are confusing the CBN's benchmark rate with the interest rates charged businesses in Nigeria. The latter is driven by inflation, reducing the former would have little or no effect on the latter. You may have in mind that the government - perhaps the CBN - should regulate or mandate lower lending rates to businesses but as with most government price-fixing diktats, it would backfire spectacularly causing greater scarcity of bank lending.

I understand the connumdrum about a lack of investment in Nigeria, you seem to think that inflation in Nigeria can be curtailed by producing more goods locally. However, underinvestment in Nigeria is a supply-side constraint reflecting the general business environment: poor infrastructure (electricity, transportation,e.t.c), weak human capital, insecurity, inadequate regulatory environment, e.t.c. The CBN's monetary policy tool is a crude and ineffectual instrument to solve a problem of underinvestment which has gone on for decades. As much as I disdain Emefiele, banging on about the MPR as a solution to our long-running problem of weak local manufacturing or investment in general is rather misguided. Improving the investment/manufacturing environment in Nigeria is a long-term project requiring major policy reforms, the CBN's benchmark rates (the MPR) is not the policy instrument that will help.

This discussion also reveals an underappreciation of how markets work; if there was a viable business in lending to businesses at below present market rates, investors/banks would lend at lower rates to gain market share from other banks. Further, if there was a viable business in producing goods locally, money will find its way into the manufacturing sector in Nigeria (bypassing the banking sector if need be).

I am also not sure why people who go on about the cost of lending in Nigeria do not realise that the FG affects the costs of lending. The FG by announcing and proceeding with record borrowing plans in 2016. 2.2 trillion naira at the last count, is driving the costs of lending up. This is because the FG's borrowing - by adding to the demand for credit - increases the cost of credit. When the FG competes for credit with the private sector, the FG wins hands down driving up the cost of credit and "crowding out" the private sector. This is an FG that is embarking on oil exploration near Lake Chad and purportedly spent over a billion on the Change begins with me campaign (not to mention the billions wasted on the presidential fleet or the National Assembly).

For now, we need to curtail inflation which is being driven by our currency crisis. Cutting the MPR would make the currency crisis worse. People are forgetting that the CBN cut the MPR to 11% in November last year. Look what happened below:

I am greatly impressed by your expose and depth, knowledge like yours dont come cheap.

Let us come to a common ground. I am not an advocate of a lowered MPR reason I based my arguement on bank lending rates.
According to you, you said the bank's rate is designed to hedge out inflation which currently is at 17.6%, how is 33% justified?

My idea of lower interest rate is not a reduced MPR but the bank's rate, according to you, should CBN dictate for the banks, it will back fire, I totally disagree with you on that.

State Governments are not TSA compliant hence banks still have access to government funds, these funds are usually invested in TBN, at a rate that hedges inflation going by the rates of the last auction.

The banks are given a free ride to suck all the oil in the economy leaving the real sector comatose.

Let me for the sake of arguement agree that the CBN dictating rates for banks will back fire, have you thought of a phenomenon where the CBN compete with them?

Recently we heard that the cbn created a credit pool of 500b at 9% interest rate, how accessible are those funds? Did it end up with the banks as a compensation for the TSA?

Do you expect me to go to a bank that will charge me 33% if I had access to CBN'S 9% absent sundry charges synonymous with commercial banks?

Such pool of funds at reduced interest made accessible for manufacturers is the point I am making. make no mistakes, the federal government is not allowed to borrow from such pool so the issue of the FG driving credit demand does not apply here.

In summary, if the CBN can not dictate rates for banks, how about competing with them? competition drive down prices, I am certain you know that much.

A lowered credit for manufacturers will increase productivity sundry infastructural challenges not withstanding. Cadbury has manufactured in Nigeria for over 20yrs, declaring profit each step of the way in the face of infrastructural deficit how did they do it?

I insist that a reduced interest rate is the way forward for our economy.

Shym3xx:
Lol.

So all the village idiots and voodoo economists who supported the disastrous floating and are in the habit of throwing around vacuous economic terms are back again to support the disastrous high interest rates.

Bunch of clowns.

You seem to forget that floating the naira was an economic necessity not a premeditated policy direction.

Shym3xx:
Lol.

The illiterate homoerotic numbnut who does for.eplay on himself and Iweala the utter failure's biggest fan boy is back again. You're a gift that keeps on giving. And this is the last reply you'll get from me.

1). I bet you ignored the aspect of my post where I cited that there are "nuances" between Nigeria and Russia because you're an obtuse scammer with selective reasoning in voodoo economics. The same way you ignored the part of my posted which showed that the US reduced interest rates to stimulate its economy due to recession and that's contrary to what your Emefiele posited here: "Emefiele said the Federal Government should toe the line of other developed countries such as the United States that adjusted its tax policy during the period of economic recession to stimulate consumer demand."

Now back to Russia: why did it increase its interest rates in 2014? Was it to stabilise its economy and reduce inflation - or for a short-term gamble aimed at keeping the ruble afloat due to sanctions, and capital flight while everything else is being sacrificed?

Forbes has the answers:



2). Now that the sanctions have been eased and all the sanctions should be lifted by the end of the year, with the country still in recession - what did Russia do in a proactive way to shift focus away from the artificial padding of the ruble, to its economy ?



CNBC business has the answers:



4). And your floating policy of an utter weak currency in a dead economy heavily dependent on imported goods that has plunged the naira to an exchange rate of almost N500 to $1 is the answer, yes? I thought you said the naira won't fall beyond £250 to $1. How come it's almost N500 to $1 within three months and it's still falling? You're a circus clown who dwells on throwing useless economic terms around.

Russia got into the recession due to economic sanctions and the sanctions specifically targeted the ruble, hence the need to defend the ruble at all cost at the expense of its economy. And now that the sanctions are being eased due to how international relations between Russia and the west have improved lately - the focus has shifted back to the country's economy which has been in the doldrums for over 18 months.

However, that didn't happen with Nigeria and the naira wasn't targeted by anyone. The country's biggest problems are its economic woes and it started with the last administration and the failed policies of this administration exacerbated it. And to solve the problem - the economy has to be the priority. I bet you won't understand something as simple as that since you dwell mostly cramming junk, with garbage in and garbage out, like a robot.

P.S: look at the sources I referenced: Bank of England headed by the supreme Mark Carney the one with the magic touch, Forbes, ABC business, CNBC business, and CNN business - compared to the rags fo.replay referenced: shitty IBtimes, businessinsider, and a blog on reuters. Hysterical. Voodoo economist.

Inflation slowed down before Russia cut interest rates, has inflation slowed down in Nigeria?
Nigeria is a peculiar case, MPR is not the problem, bank interest rate is.