Renowned economist Prof. Ken Ife has asserted that the Central Bank of Nigeria’s (CBN) decisive monetary policy tightening is poised to draw in significant foreign portfolio investments.
According to News Agency of Nigeria, the Don stated this in an interview with journalists in Abuja.
Ife, who serves as the lead consultant on private sector development for the ECOWAS commission, noted the CBN’s strategy as instrumental in attracting essential dollar liquidity and fostering stability in the foreign exchange market.
The recent surge in the country’s monetary policy rate (MPR) by 600 basis points, soaring from 18.75 percent to 24.75 percent between February and March, as mandated by the Monetary Policy Committee (MPC) of the CBN, is viewed by Ife as a pivotal move to heighten the appeal of the economy 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.
He said 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.
“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.
He said that the excess liquidity was also a major reason why some Nigerians chased after the dollar.
“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.
The expert criticised the CBN for going after speculators in the foreign exchange market, like Binance.
He said that such a step would also stabilise the currency market and moderate inflationary growth.
Credit: NANS
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