John Omachonu

There are indications that the nation's Monetary Policy Committee (MPC) may nolonger play the ostritch and hence the joining of global and regional bandwagon of interest rate hikes by the Central Bank of Nigeria (CBN) after maintaining the status quo for over two years.
Nigerians expect CBN to evolve pragmatic strategies for emergence of an economy with fairly constant output growth, low and stable inflation. 
There is also the need to preserve the integrity and purchasing power of the nation's local currency to enable people hold money for transactions and other purposes without the fear of losing its value.

This is why the alarm by Mahmood Yakubu, chairman of  the Independent National Electoral Commission (INEC) that democracy in Nigeria is being threatened by the predominance of money politics should be considered seriously.

Official inflation climbing to 16.82 percent in April (7.82 percent above the CBN’s target ceiling of 9 percent  became the last straw that broke the camel’s back.
According to Bismark Rewane, chief executive of the Financial Derivatives Company, the hike in interest rates by the MPC at a time of 'positive' GDP growth (Q1’2022: 3.1 percent) bodes well for the Nigerian economy. 
But, considering the nature of the economy, every percentage increase in GDP leads to about 18 percent increase in imports

However, increased political spending, high powered money and election spending may partly be responsible for the continued weakness of naira 

Consequently, Naira plunged 25.3 percent in the last 12 months (N609/$). 
In the midst of the delegate procurement program and desire to keep assets in foreign currencies, the naira continues its free fall, but after the primaries, delegates will sell their booty. 

Since the MPR is an anchor rate and all other rates are expected to move in tandem, interest rates on fixed income securities will rise. 

This could keep the country’s government backed securities relatively competitive with other emerging market economies and therefore become very attractive to banks. 

Consequently, investors, even though cautious, would be encouraged to maintain their Naira holdings and reverse capital outflows that have risen by 72 percent in the last two years.

 “This sharp rise in cost-push inflation compounded by a weak naira (N610/$), bleeding reserves and wilting investor confidence eventually forced the apex bank to raise the monetary policy rate (MPR) by 150 basis points to 13 percent p.a. - the highest level in 70 months,“ says Rewane. 

Raising rate in the middle of political campaign requires extra efforts and measures like the orthodox use of fixed instruments to control liquidity in the system. 


However, the time lag between policy and transmission impact on the economy will have to be shorter this time, because of the charged political environment. 

"We believe that the CBN is now more likely to remain focused on its primary responsibility of maintaining price stability,“ says Rewane in a Post MPC - May 2022(Re: MPC No Longer Playing Ostrich). 

Noting that the motive of MPC decision to hike rate may basically be for macroeconomic stability, he further observed that inflationary pressures do not impact negatively on goods and services alone, but also wide disparity of 16.82  percent official against over 60 percent in synthetic or real market rate has continued to be a source of concern to consumers and policy analysts. 
The implication is that the vicious circle of poverty would continue as data integrity may become another major issue. 

As a way out, the foremost economist suggests, among others, raining in inflation before it gets galloping, restoring investor confidence and moderating speed of capital flights, among others. 

There are also challenges such as unstable price, currency weakness and fragile gross domestic products, (GDP), which must have to be tackled for the much needed sustainable growth. 
According to Friday Ameh, Lagos based energy analyst, MPC, can no longer afford to footdrag as the much touted growth recorded has been fragile and therefore, has giving matching order to CBN, which, should as a matter of urgency embark on reducing the inflationary pressures, which like the foreign exchange, has two rates. 
While craving for Foreign Direct Investments (FDIs), CBN should be wary of portfolio investments or 'hot money' which can be pulled out at short or without notice. 
CBN, according to Ameh, must increase its monitoring and surveillance capacity as the propensity for higher investments in fixed instruments by banks would rise, and this will be at the expense of financial intermediation.

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Another analyst calls for a redefinition of role for CBN to ensure, not only price and macroeconomic stability, but being development oriented as well as playing advisory role to the president.

"Responsibilities of CBN are enormous and as such governors and his lieutenants are expected to be dispassionate and be insulated from the environmental happenings, particularly, when they are external to the core values or mandate.

" Ideally, when central bank governor sneezes, or its body language not in tandem with relevant issues, the economy catches cold," he said. 
The orthodox monetary policy measures are expected to have impact also on the citizens, depending on the classes:
For workers, higher food prices, unemployment will remain high and home rents may increase, while for middle class: higher tickets, school fees, house rent may be experienced. 
Generally, the immediate implications would include rise in general level of interest rates, increase in government debt service burden as well as rise in private sector borrowing costs, default rate on debts to increase and higher impairment charges. 

Also, if well managed, could lead to positive impact such as  reduction in capital flights, Possible increase in forex inflows as well as strengthening of naira. 
However, interest rate hike will further slowdown the pace of economic recovery, while investors will have the option to rotate portfolio in favour of fixed income securities, with the attendant impact on stocks, which prices will decline

Other market watchers and analysts believe that CBN can achieve the desired goal when the fiscal aspect is well taking care of by the government.

In essence, they reasoned that there is need for complimentary between the Monetary and fiscal policy measures.


For instance, the Independent National Electoral Commission (INEC) says the current democracy in Nigeria is being threatened by the predominance of money politics.

Mahmood Yakubu, it's chairman said  at a one-day colloquium on Emerging Issues that will Shape the 2023 General Elections in Nigeria organised by the Centre for Democracy and Development (CDD) in collaboration with Open Society Initiative for West Africa (OSIWA) on Wednesday in Abuja on Wednesday that money politics is threatening democracy in the country.
Yakubu, who identified security and fake news as other challenges zeroed in on money politics when hevsaid:

“My third area of concern is the influence of money on politics and is becoming more present and the risk is that ours may soon become a plutocracy for the rich rather than a democracy for the people.
 
“The way money is exchanging hands is a source of concern, yes, we have collaboration with ICPC and the EFCC and only recently we renewed our collaboration with the EFCC, saying that we are going to do something together.

“However, there are two dimensions to it, when you have willing connectors it becomes a bit more difficult to contain the situation.

“On the one hand, you have brilliant examples, we all saw this on the social media in Anambra when there was an attempt to bribe voters and the women refused to accept the money and voted their conscience,” he said.

According to Yakubu, what political parties do is critical to what INEC does because that is what is called the primary election.

This, he said was because the candidates that emerged from the primary elections were the ones that would participate in the secondary election that INEC would conduct.

He said that the commission was working with anti-graft and finance agencies to see how to curb the challenge of money politics.