In 159 Words, The CBN Confirms To The World That Dollars Is The Opium Of Nigeria’s Economy

The Central Bank of Nigeria on Tuesday increased the Monetary Policy Rate (MPR) to an unprecedented 14%, the highest we have ever seen. We had expected a rate hike of between 1 -2% considering the inflation rate and the general state of the economy.

We also expected the CBN to increase rates as a means of attracting foreign investors into Nigeria. With the unofficial ceiling removed allowing the dollar to float freely, the CBN only had one more ace to play, raise rates. If the government borrows at 17% and the CBN’s benchmark rate is at 14% then that gives foreign investors have every incentive to consider returning to Nigeria.

Whilst we know all of this, it was quite shocking knowing that the CBN did actually see this as a “major strategy” for attracting foreign investors into Nigeria. The bank is basically confirming to the whole world that dollars was indeed the opium of the economy. Check this excerpt from the monetary policy communique.

“The MPC in putting forward for tightening considered the high inflationary trend which has culminated into negative real interest rates in the economy; noting that this was discouraging to savings. Members also noted that the negative real interest rates did not support the recent flexible foreign exchange market as foreign investors attitude had remained lukewarm, showing unwillingness in bringing in new capital under the circumstance. Members further noted that there existed a substantial amount of international capital in negative yielding investments globally and Nigeria stood a chance of attracting such investments with sound macroeconomic policies. Consequently, members were of the view that an upward adjustment in interest rates would strongly signal not only the Bank’s commitment to price stability but also its desire 22 to gradually achieve positive real interest rates. Such a decision, it was argued, gives impetus for improving the liquidity of the foreign exchange market and the urgent need to deepen the market to ensure self-sustainability. Members were of the opinion that this would boost manufacturing and industrial output, thereby stimulating growth which is desired at this time.”

The sentences highlighted above are quite remarkable. No matter who you are, corporation, small business, salary earner, so far you owe banks money, the Central Bank has basically raised your lending rate and reduced your cost of living all in a bid to attract foreign investors. The CBN is telling Nigerians and the whole world that without dollars this economy is toast.