Low Interest Rate Could Create Inflation Crisis – CBN

 In Investor News

The Nation faces a delicate balance of maintaining the current interest rate and allowing it to fall over time, while attracting investment funds to build infrastructure or crash rate and face inflation crisis, the Central Bank of Nigeria (CBN) Director in charge of Policy, Mr. Moses Tule has said.

He spoke while fielding questions from journalists, shortly after the Maiden Colloquium of Prof. Uche Uwaleke, in Abuja on the 28th of June, 2018. According to him, a sudden crash in rate could lead to higher demand, leading to inflation which would bring about calls for wage increase in both public and private sectors, with various consequences for the economy.

According to Mr. Tule, “When you reduce MPR, of course, the way the fundamentals are today, you are going to have the impact of that in other ways; which means the demand is going to be higher on the Government to increase wages because inflation will erode the living wage. There will be demand on the Government, and every other person in the private sector will demand for wage increase.

“That’s the choice. We have to choose between having to improve infrastructure and interest rate will come down overtime and the whole economy will benefit or reduce interest rate now and then worsen inflation.” The Nation’s Monetary Policy Rate (MPR) has been left at 14 per cent for nearly a year.

He called on relevant authorities to invest the large pension fund in the Capital Market with a view to creating a pool from which long-term investments in infrastructure could be sourced. The Director said that there has been greater synergy between monetary and fiscal authorities in their efforts to achieve a stable growing economy.

Such cooperation, he said, was what lead to a steady increase in the Nation’s foreign reserves, now put at over $48 Billion. In his address, Prof. Uwaleke said that the Nigerian Capital Market was challenged by depth and breadth. His words, “We need to diversify Capital Market. If the big companies go under, that will be the end of the Capital Market.”

He was emphatic that the dependence on foreign investors by the Nation’s Capital Market was detrimental to its development and health. The celebrant said, “The Market is tied to the apron string of foreign investors so much so that if foreign investors sneeze, the market catches cold.”

He lamented that when compared with South Africa, the market capitalisation of the Nigerian Stock Exchange (NSE) was still insignificant and that stakeholders in the market must work hard to grow it beyond its current level of capitalization. Also speaking, former Director-General of the Securities and Exchange Commission (SEC), and Chairman of the colloquium, Dr. Suleiman Ndanusa, said that the overall growth of the country depended on the Capital Market.

According to him, both public and private sector leaders in the country owed it a duty to develop the Capital Market by building investor confidence among Nigerians and foreigners investors to create a pool of long-term funds from which to develop the Nation’s infrastructure.

https://www.vanguardngr.com/2018/06/low-interest-rate-create-inflation-crisis-cbn/

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