An economist, Idika Kalu, has said the Central Bank of Nigeria (CBN) knows the right policies to take to grow the country’s economy, but they are not doing it.
Idika Kalu stated this while speaking in an interview with Arise TV on the new interest rate raised by CBN, on Tuesday.
He noted that raising interest rates and, at the same time, removing subsidies that could help the citizens was wrong policy. He argued that Nigeria’s economy cannot grow with such a policy.
Kalu said, “You see, in governance, you can’t remove subsidy for the poor and at the same time increase taxes and interest rate. You don’t do that. So if you have high interest rates and have high taxes, you can’t build an economy by that means. What builds an economy is production. And the Central Bank knows that it has policies that it can tweak to get the economy on a productive trajectory.”
Speaking on what policies the CBN can take to grow the economy, Kalu continued, “First, you have the stock of money supply. They can manipulate that. The interest rate, that is what they are doing and they have been doing for over 20 years. You have volume of credit. You have management of the exchange rate. And you have what we call final expenditure. That is like mentioned ways and means of the Central Bank. You see, what the nation is suffering from is that we are not productive. And government has policies, economic policies, that should, I mean, for people in authority, that’s what should interest them.
“One, the first is your economic development policy. That’s very important. Price stability is the second policy. Then you have healthy balance of payments. You have creating employment opportunities. And of course, the development of the financial institutions. These are key policies of government.”
The Managing Director of GABS Financial Services explained that the current economic and monetary policies of CBN were responsible for no low growth in sectors of the economy.
“So whether it is the monetary authorities or the fiscal authorities, they should address these problems. So economic growth and development, there are two things. Economic growth is that maybe a sector is contributing to national income.
“But when you talk of economic development, it means the various sectors in the economy are simultaneously contributing to national income, housing, education, transport, health, all contributing. And that is what builds standard of living of individuals. And we are not doing that. We only have maybe the oil. Manufacturing sector is comatose. Nothing is happening. The agric sector, nothing is happening,” Kalu stated.
Speaking on how the capital market would react to CBN’s new interest rate, he explained that “there is an inverse relationship between interest rates and bond or stock market prices.
“So when interest rate goes up, stock market prices come down. And so before you take such sensitive decisions, you should know the implication or the ripple effect in other sectors like the capital market. It is the capital market that really builds a nation because they can mobilize long-dated funds for economic development.”