MPR: An unnecessary hike

Several days after the Central Bank of Nigeria (CBN) ordered banks and the general public to obey the Supreme Court judgment extending the legal tender status of N500 and N1,000 notes, Nigeria’s cash flow crisis has refused to go away.

Thousands of electronic banking transfers and point of sales (PoS) transactions remain unconsummated. Payers are debited while payees’ accounts are not credited.

On Friday, March 24, 2023, a woman whose child was in critical condition in the hospital, stormed the U-Turn branch of First Bank over an unconsummated transfer of N70,000 paid for the child’s medical bills through PoS.

Her account was promptly debited but the hospital PoS print out read “decline”. She created a scene that drew tears from the eyes of many in the over-crowded banking hall.

While she insisted that her child could die if she did not pay for the prescribed drugs in time, the bank countered that the transaction can only be consummated in the next five days as the error can only be rectified at the bank’s central electronic command centre.

Even as the woman was weeping in apparent frustration as the life of her child was on the line, no one could help her. A woman who could not stand the tears of the frustrated mother pleaded with the branch manager to pay the money as a loan to the embattled woman and deduct it when the error is rectified. The manager said the matter was beyond her.

No one knows how long the child in critical condition in the hospital could hold out. The cash flow crisis engendered by the ill-executed naira redesign has thrown up thousands of sympathetic cases that no one cares to record.

There was a time when unconsummated electronic banking transactions were reversed within minutes of the failure and the payer’s account promptly credited. Those days are gone and may be gone for a pretty long time.

Those with unconsummated transfers or PoS transactions are now required to report physically at over-crowded banks’ branches where they wait for hours only to be handed forms to fill and wait for seven working days before the unconsummated transaction is grudgingly reversed.

The chaos in the electronic banking networks is caused by unmitigated over-loading of the system through the diversion of millions of transactions to the electronic platform as a result of the cash crunch imposed on the system by the catastrophic miscalculation of the productive capacity of the minting company under CBN purview.

Banks have refused to expand their networks and the regulator is not bothered about the chaos in the electronic banking platform.

Even as the CBN ordered banks to pick the old notes they deposited with CBN branches, banks have still not loaded most of their ATMs with the old notes.

Just as hundreds are dying and thousands of micro, small and medium businesses are collapsing from dearth of patronage due to the mismanaged naira redesign project, the apex bank rubbed more salt into Nigeria’s festering economic wound.

CBN’s monetary policy committee met last week and pushed the monetary policy rate (MPR), the base line lending rate, to 18 per cent.

The move is designed to curb inflation which surged to 21.9 per cent in February. Nigeria’s inflation is considered modest even by emerging markets standard.

Ghana, Nigeria’s western neighbour which has taken a number of foreign investments from Africa’s largest economy, is battling inflation rate of 65 per cent.

Argentina, one of Latin America’s most diversified economies lumbers along with 100 per cent inflation rate. Turkey, an industrialised country strewn across Europe and Asia which thousands of Nigerians are fleeing to, was battling inflation rate of 85 per cent in October 2022. It has moderated to 65 per cent which is still on the hyper side.

CBN has a penchant for fighting one-handed wars against inflation. It persistently manipulates MPR in a way suggesting that inflation begins and ends with liquidity control.

That one-handed approach is responsible for Nigeria’s double digit inflation rate. The federal government’s fiscal rascality is responsible for most of the surge in inflation. Ironically, government is not helping CBN in the fight.

While CBN keeps manipulating MPR in a desperate bid to tame inflation, the federal government inadvertently fuels inflation with an odd combination of wrong actions and criminal inactions.

The insecurity in the land contributes immensely to inflation rate as herders mischievously feed their cattle with crops from peasant farmers’ farms. Government has maintained a deafening silence over the menace.

The pump price of diesel at N800 per litre is another major cause of inflation. Nigeria imports all its refined petroleum products with a weak naira.

Besides, Nigeria’s rail system has been comatose for close to 30 years. That leaves dilapidated roads as the only land transportation medium for carting food items from the remote North to markets in the South.

With hundreds of check points (toll gates) dotting the landscape, extortion by corrupt security officials add a minimum of 10 per cent to the cost of the carted food items.

Massive looting of the economy by corrupt government officials contributes extensively to inflation as the looters hide the money at home and deprive CBN of control over the money.

Ironically, the collateral damage (side effect) of MPR hike is inflation itself as economy operators pass the higher cost of money to consumers by way of higher cost of goods and services.

Last week’s MPR hike is one too many. Britain with inflation rate at 10.5 per cent just inched up its base line lending rate to 4.2 per cent. That is a government that fights inflation from all fronts. If Nigeria was to follow that trend, with inflation rate of 22 per cent, MPR should be in the range of 10 per cent.

The federal government should be compelled to see that CBN has reached its limits in fighting inflation with monetary policy instruments.

The monster can only be tamed if government tackles other causes of inflation.