Economic recovery should determine monetary policy – Economist

Chief Executive Officer (CEO), Economic Associates, Mr Ayo Teriba, has said that economic recovery should be the overriding consideration for monetary policy.

He said this on Thursday in Abuja while speaking with the News Agency of Nigeria (NAN) on the outcome of the Monetary Policy Committee (MPC) meeting concluded on Tuesday.

The MPC had again retained the Monetary Policy Rates (MPR) at 14 per cent due to current uncertain economic conditions and high inflation.

The Central Bank Governor, Mr Godwin Emefiele, had said that all other monetary indices were also retained, a situation that had remained hardly changed since July 2016.

Teriba said that in the last six years, the MPC decisions included easing the MPR just once, while the Cash Reserve Requirement (CRR) was eased twice.

“In contrast, the MPR has been tightened 10 times, including twice during the recession in 2016, and the CRR has also been tightened 10 times, including once in 2016.

“It is very puzzling that MPC finds extraneous reasons, typically about banks or foreign exchange supply, to tighten monetary policy even when the economy is contracting and can do with some liquidity boost.

“The economy is bigger and more important than the banks, but MPC statements continue to dwell on banks’ conditions, rather than on economic conditions, indicative of lapses in banking supervision.’’

According to him, inflation should currently not be a consideration for monetary policy decision because it is cost-pushed; rather, it should ease the MPR considerably, but in an orderly manner.

This, he said, would pave way for the low interest rate environment required for rapid economic recovery and growth.

“To support economic growth and recovery, the MPC must ease its policy stance by cutting MPR in an orderly manner to such a low level that will provide much needed liquidity support for investment and sustained growth.’’

Teriba also said that high interest rate environment orchestrated by unnecessarily high levels of the MPR and CRR was hurtful to investment and growth.

He said that MPC statements indicated a lot about the need to keep the MPR high enough to attract foreign portfolio inflows, rather than ease rates to stimulate growth and investment.

He called for immediate reforms in the nation’s monetary policy process, banking supervision arrangements and foreign investment policies.

“Those reforms are needed to ensure an orderly transition to a low MPR and CRR regime that is urgently needed to boost growth a