Emeka Ucheaga Advisory

Dear Speculators, The catastrophic collapse in the value of Naira in 2016 has brought more bad news than good news to Nigeria. This has come at a time when currency manipulation in Japan, China and Switzerland to purposely erode the value of their currency in order to gain trade advantages has angered many foreign governments especially America. Britain was lucky to have had the Pound devalued by the financial markets in the aftermath of the Brexit to the delight of the Bank of England whom like many other Central Banks in the western world are now inflation seekers. But not Nigeria, we don't need a weaker Naira, at least not now. Unfortunately, the drastic fall in the oil price, current account deficit, lower foreign external reserves and withdrawal of foreign investments from Nigeria has dragged the Naira about 58% lower since its January levels at the interbank market. This has almost doubled the rate of inflation in the last one year as imported products make up a si...

Dear Speculators, Economic thought is contestable and opinionated but economic fact is definite, you are either right or wrong. For the second consecutive Monetary Policy Committee meeting, we have correctly predicted the outcome of the meeting and correctly called the key interest rate (read up our last post). Still many analysts, including the Nigerian Minister of Finance continue to call for lower rates to salvage the economy from prolonged negative growth. Twice the MPC has ignored them and rightly so. How does the CBN justify low rates in times of high inflation? That's a doltish request! Numerous Keynesian economists have fallen prey to the interest rate fallacy, believing that low interest rates are accommodative monetary policies that lead to economic growth. On the contrary, Friedman proved that interest rate cuts is indeed a tightening monetary policy which leads to a reduction in the monetary base of a nation. Rather than interest rate cuts leading to economic...

Dear Speculators, For the fifth time this year, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria will seat to decide on new monetary policies to influence the general economy to achieve their policy objectives. These objectives can be broken into four macroeconomic goals; economic growth, full employment, price stability, and exchange rate stability. The main policy tool of the MPC is the monetary policy rate (MPR) which is the rate at which the CBN lends money to banks. Now it is almost impossible for the MPC to marry all the objectives by simply using interest rates. This is because while raising rates may favour the last two objectives, it is unfavourable to the first two objectives and vice versa. Understanding what drives each of these objectives is very important. Economic growth is achieved through an increase in productivity in the economy, either through technology or an increase in skilled labour. Even zero rates in America and Europe hasn't ...