Tons of money everywhere and inflation is HIGH in the land. The Central Bank of Nigeria is not happy, and has been increasing rates to slow that down.
But wait, the same apex bank wants banks to go and raise more capital as part of a recapitalization playbook. That is a noble thing to do since the banks need to be stronger after the Naira lost ground with US dollars, Euro and GBP.
My question is this: if banks raise these new funds, and as expected, they cannot keep the funds in pillows in Ovim, but are expected to invest them, via loans, assets acquisition, etc, thereby pushing more funds into the economy, what do you think will be the implication on inflation in Nigeria?
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Let me say it another way: if the apex bank’s monetary policy of rate hike reduces money velocity by say N1 million, over time, and banks go ahead and raise new capital of N2m, and give out those funds as loans (to stay within standard ratios of capital and loans), are you worried that inflation will continue to increase in Nigeria irrespective of whatever the central bank does now?
I am a village boy, and I am thinking how this recapitalization can calibrate out all the efforts the apex bank could be putting to bring inflation down. Of course, Nigeria’s inflation, in my opinion, is not demand-pull type, but one that is evidently supply-driven.
Meanwhile, I wish CBN leaders will return the apex bank to the good old ways when they used to publish working papers We The People could read. As a junior banker in Lagos, I used to print those things to understand what was driving policy engineering. But since 2016, theyhave classified those papers and that is why we have nothing to read here https://www.cbn.gov.ng/documents/CBNWorkingPaperSeries.asp. Can CBN share? I want to read the papers as these decisions are being made.
Tons of money everywhere and inflation is HIGH in the land. The Central Bank of Nigeria is not happy, and has been increasing rates to slow that down. But wait, the same apex bank wants banks to go and raise more capital as part of a recapitalization playbook. That is a noble… pic.twitter.com/FwXGhwNpoA
— Ndubuisi Ekekwe (@ndekekwe) April 8, 2024
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When we say tons of money everywhere, is it physical cash or the digits in people’s accounts? Because either has different impact on the economy. Did our inflation run away because banks had plenty money to give out as loans? It is not likely. Again, how do we become a bigger economy without adequate liquidity? Which banks here can finance N100 billion project without too much drama? But we still think there’s too much money, probably it’s raw cash outside the banking system.
To reign on inflation by ramping up production, we still need large capital, if banks recapitalize, won’t that position them to do bigger stuff; that is if they are actually interested in banking? Because what is largely obtainable here is no banking, we are just trading currency and charging commissions.
There will be gains and losses either way, the only mystery is whether we are preparing for anything at all, else we will still be scratching our heads at the end of the day. Our banks are too small for our size of ambitions, so it’s either we look for new money or we add landed properties to our balance sheets. We have hundreds of billions of dollars that have no velocity, it’s part of why we remain poor.
The answer to your question is that it is not even a mystery. Sadly, we never analyze, forecast and create solutions towards the various problems that we face. But we have a tendency to be reactive towards these issues and point to some vague explanation as to why things are the way they are.