Don’t Expect Growth From Anti-Growth Monetary Policy
By Odilim Enwegbara
No economy witnesses a sustainable growth without its real sector driving it. And the real sector cannot grow with monetary policy rates always above single digit. That is why at 12 percent and above, all modern economies will always become a candidate for recession.
Therefore, to avoid plunging any economy’s growth, the managers of its monetary policy always endeavor to pursue expansionary monetary policy, injecting liquidity into the system rather than tight monetary policy or monetarism that contracts liquidity mostly through mopping policy. One of the consequences of this monetary policy stance is that, by reducing system liquidity, it automatically pushes cost of money to the roof, which is followed by rise in the inflation rates.
Two difficult problems are encountered by the real sector as a result. One is that they are priced out of the debt markets since high cost of money prices their goods and services out of both domestic and foreign markets. The second is that, as a result of the resulting inflation, most consumers too are priced out of the consumer markets the real sector firms supposedly expect to be patronizing them.
Because the only beneficiaries are banks and portfolio investors, they enjoy using their speculations to take full advantage of the arbitrage caused by the resulting economic financialisation. But, that the central bankers, fully aware of how hurting this is to the real sector firms and still pursue such contractionary monetary policy can only be explained to mean that those pursuing this policy are only doing so because they are in bed with the beneficiaries of their anti-real sector and anti-growth policies.
That Nigeria’s economy has been fatiguing endlessly is because manufacturing firms are endlessly being punished not only with expensive infrastructure that makes them uncompetitive, but also with high cost of money, is not supposed to be so. This has continued to crowd them out of the debt market by pricing the cost of money beyond their reach.
The kind of monetary policy drug recommended by the CBN is not different from the kind of killer drugs a quack physicians recommend to their patients. The difference is that the CBN knowingly kills our real sector firms, whereas the quack doctor, out of sheer ignorance poisons his patient. For example, like when the quack doctor recommends more sugar for his high blood pressure patient, when in reality what the high blood pressure patient truly needs is drug that lowers and stabilises his blood pressure.
In other words, by increasing the MPR at a time the economy needs low MPR is unbelievably damaging, leading the real sector firms to bankruptcy and to their businesses’ early graves. As real sector firms die off, what else happens to the rest of the economic growth activities than coming to a halt? In the meantime, as the only ones that manage to stay afloat are being forced to increase the prices of their goods and services, the CBN returns with its killer hammer by raising interest rates in its false fighting the so-called high inflation.
In this so-called drive to fight inflation, when accompanied with liquidity mopping by the same CBN, without first fighting what caused high inflation itself, which is high MPR, the consequences can’t be less than recessionary economy. As bizarre as this is, it has been happening in Nigeria as we speak, thanks to our media who prefers to be in bed with these destroyers of our economy simply for whatever hand-out they receive. And why shouldn’t they, given that to make ends meet in Nigeria have become increasingly difficult even for the rich.
As implausible as this is, the country’s chief banker has been doing everything to keep justifying the unjustifiable restrictive, anti-growth, anti-jobs monetary policy. Unbelievably also, our central bankers have been insulting our collective intelligence whenever they insist that theirs is a monetary pursued in our price stability interest, even if done simply to halt the entire economy. That is why they continue to dodge the question, what is more important; an MPC that blindly pursues price stability through inflation fighting or fights high interest rate so as to increase system liquidity in a way that hands cheaper money to real sector actors so they invest more in their businesses and reduce the economy’s import dependency?
We all know that there is no reasonable chief banker of a western economy or even an industrialising economy, that should be too stupid to be fighting inflation blindly with such a monetary policy that rather than reducing MPR to reduce inflation will be increasing MPR so as to continue increasing the same inflation the chief banker is trying to fight. Or, why should he increase the cost of money knowing that that too increases the same cost of doing business he is hired to reduce and promote?
That is why MPR at 14 percent rather than improve economic development at a time the country is still hovering around the recession, will be worsening it by increasing the cost of doing business which increases import-dependency, and which goes further to put more demand pressure on the country’s scarce forex. This goes further to plunge the value of the naira, leading to more imported inflation.
The argument that the MPR was increased also to attract foreign investors can’t be further from the truth. This is because the so-called foreign investors — who in our own case are actually foreign portfolio investors — are actually arbitrage digger and economic financialization beneficiaries, who waste no time to quickly exit our economy once they notice a crack in the economic wall.
As unbelievable as the argument that as an import-dependent economy we should always strengthen the value of the naira is because those making such argument are ignorant of elementary economics or are truly mischievous to be insisting that our answer to end importation is to continue to subsidize the same imported goods. That we want to allow dumpers of cheap consumer goods and services into our consumer markets and by so doing continue to price out their local counterparts is mind-boggling to say the least.
We all know that the solution, which is not new to a situation like ours, remains lower MPR and devaluation of the naira in a way that discourages imports by pricing them out of our domestic markets. We all know that it is only by injecting more liquidity into the system that we will be able to lower the cost of money, which if it happens will also make real sector firms access cheap funds they need to grow investment in plants and equipment upgrading and expansion.
Whether we all like it or not, there is no option to quantitative easing. Whether we like it or not, that is the easiest and best way to increase system liquidity. Of course, had we followed lax monetary policy stance, no doubt, the injection of lots of liquidity into our overly illiquid economy, by printing and injecting trillions of naira would have helped our real sector firms.
But because those who are wrongly opposing it are in the majority, it is understandable why it is seen as a taboo especially with the neo-liberal apostles that are so powerful and are so in bed with the media has been making it difficult for the public to hear the hidden truth; the truth is that the imposition of tight monetary policy along with contractionary fiscal policies is done to seriously hamper our development by countries whose economies only grow by undermining our growth and industrialization. And of course, our central bankers know that to keep their job, they too have to be in bed with the imperialist IMF.
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