Renowned economist, Prof. Ken Ife, on Monday in Abuja, stated in an interview with journalists that the Central Bank of Nigeria’s (CBN) monetary policy tightening would draw foreign portfolio investments to the country.
Mr Ife, who serves as the lead consultant on private sector development for the Economic Community of West Africa States commission, explained that the apex bank’s monetary policy decisions would also enhance dollar liquidity and stabilize the foreign exchange market.
The Monetary Policy Committee (MPC) of the CBN recently raised the country’s monetary policy rate (MPR) by 600 basis points, from 18.75 per cent to 24.75 per cent between February and March.
According to Mr Ife, such a significant increase in the MPR makes the economy attractive to foreign portfolio investment.
“The higher you go, the more interested investors will be in investing in your economy.
“Aggressive tightening is the most appropriate response to the size of the challenge that we face right now,” he said.
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Mr Ife equally noted that such tightening was also a panacea for the various inflationary trends that the Nigerian economy is experiencing.
“We are facing various types of inflation, like demand-pull inflation, cost-push inflation, and forex-related imported inflation.Inflation is mainly a result of excess liquidity in the system; too much money is chasing fewer goods. There is so much money in circulation that the money supply is estimated to be about N98 trillion.
However, “when the CBN tightens the rates, it sucks out the excess liquidity by offering Treasury bills. This will go a long way towards stemming inflation,” he said.
Meanwhile, the excess liquidity was also a major reason why some Nigerians chased after the dollar, per his comments.
“It is the reason why people are speculating on the dollar. They use the excess money in circulation to buy dollars; they keep the dollar as a store of value.
“It is not just importers that are requiring the dollar. There are individuals that have a lot of naira and are just trading with it.
“One of the ways to stop this is to tighten the rates,” he said.
