We will not use wage and price controls to fight inflation. Rather, we will pursue a contractionary monetary policy. We will mop up excess liquidity by reducing the money supply within an economy.

https://www.nairaland.com/7317958/use-contractionary-monetary-policy-fight

In response to the above thread i want to humbly inform Mr Peter Obi that Contractionary Monetary Policy which he is proposing cannot Solve the Problem of Inflation in Nigeria.

This is because Inflation in Nigeria is not always and everywhere a monetary phenomenon. Besides this is what the central bank of Nigeria has been doing over the years meaning that you can't follow suit and expect a different result.

First, what is monetary policy?

Monetary Policy simply means the use of interest rate by the monetary authorities in this case the CBN to control the amount of money in circulation. This can either be in the form of contractionary or expansionary monetary policy.

Contractionary Monetary Policy means increasing interest rate to reduce money supply and hence reduce inflation while expansionary monetary policy means reducing interest rate to boost the amount money in circulation.

According to the monetarist, inflation is as a result of too much money in circulation or excess liquidity and according to them, to reduce it, you increase interest rate and vice versa.

However the success of using monetary policy tool to achieve price stability or control inflation depends on whether inflation is driven purely by changes in monetary aggregates.

If it is driven by other factors such as structural and cost factors as is the case in Nigeria then the use of monetary policy tool to fight inflation may not likely yield the desired medium to long-term monetary policy goals. Besides increasing interest rates has its own negative consequences on the economy one of which is that it reduces Investment.

Note:

The intention of this post is not to de-market anybody but to elicit academic contribution to the topic.

Maybe CBN should print more money to stop inflation just like BEND MASTER said.

kahal29:
In response to the above thread i want to humbly inform Mr Peter Obi that Contractionary Monetary Policy which he is proposing cannot Solve the Problem of Inflation in Nigeria. This is because Inflation in Nigeria is not always and everywhere a monetary phenomenon. Besides this what the central bank in Nigeria has been doing over the years meaning that you can't follow suit and expect a different result.

First, what is monetary policy? Monetary Policy simply means the use of interest rate by the monetary authorities in this case the CBN to control the amount of money in circulation. This can either be in the form of contractionary or expansionary monetary policy. Contractionary Monetary Policy means increasing interest rate to reduce money supply and hence reduce inflation while expansionary monetary means reducing interest rate to boost money supply.

According to the monetarist, too much money in circulation or excess liquidity causes inflation hence to reduce it, you increase interest rate and vice versa.

However the success of using monetary policy tool to achieve price stability or control inflation depends on whether inflation is driven purely by changes in monetary aggregates.

If it is driven by other factors such as structural and cost factors as the case in Nigeria then the use of monetary policy tool to fight inflation may not likely yield the desired medium to long-term monetary policy goals.

Note:

The intention of this post is not to de-market anybody but to elicit academic contribution to the topic.

Mr critics, did you put into consideration other plans Peter Obi offered? Like creating good environment, reduced cost etc.
Because no part of economy work in isolation.
From my little knowledge of economy when the environment is favourable many thing put shapes. Also there is no perfect economy anywhere in the world, what ever is working for you continue doing it and improve. Remember is only his economic proposal/plan.

For me the first step is to restore confidence in Nigeria and Nigerians.

Over to Atiku and Tinubu.

At all

Kingspin:
Mr critics, did you put into consideration other plans Peter Obi offered? Like creating good environment, reduced cost etc.
Because no part of economy work in isolation.
From my little knowledge of economy when the environment is favourable many thing put shape. Also there is no perfect economy anywhere in the world, what ever is working for you continue doing it and improve.

Over to Atiku and Tinubu.

I only focused my attention on his policy proposal to the problem of Inflation in Nigeria. Others can take him up on some of the other policy prescriptions.

Kingspin:
Mr critics, did you put into consideration other plans Peter Obi offered? Like creating good environment, reduced cost etc.
Because no part of economy work in isolation.
From my little knowledge of economy when the environment is favourable many thing put shapes. Also there is no perfect economy anywhere in the world, what ever is working for you continue doing it and improve. Remember is only his economic proposal/plan.

For me the first step is to restore confidence in Nigeria and Nigerians.

Over to Atiku and Tinubu.

Over to who?

Oga don't go there

Make we sleep abeg

Not true. The op is dead wrong.

Ok, let's assume that he is not right . let your tinubu come and tell us how he is going to run the economy

But he will never show up, you know why? ... Sincerely With you, you already know the answer. But you are blindly supporting him why?

Agboriotejoye:
Not true. The op is dead wrong.

Pls kindly elucidate

Going by both method you put up there, since you want to restrict the options to just both...

I think Obi is right on the contractual method... if for anything, that method works but comes with it's own detriment which other aspect of the economy is supposed to tackle.. the other method only increase import businesses which in turn exports scarce forex.

The contractual method of driving up interest rates would drive people out of business, most especially import businesses, where the people can no longer afford the price of commodities and then the businesses are forced to sell at a loss while closing shop. E.g the current auto business and so many others.. now the detriment is, it creates unemployment for those whom can't afford to go into production... which slows down the productive drive Obi is eager about.

Solution:

Nigeria has potentials, but the problem is individuality, everyone wants to own it alone, that has been the bane of growth in Nigeria. 10 -20 importers in groups can set up large manufacturing plant while the Govt comes in to assist as part shareholder, which is applicable 100% in China and our own Dangote refinery.. but here most would rather prefer to go it alone.. e.g (okey & sons) etc no pun intended..

Solution 2:

The Govt should setup crowdfunding controlled and monitored by the CBN/EFCC for various start-ups projects, this would encourage new businesses while bringing transparency.. this would in turn curb unemployment drastically while ensuring the distribution of wealth.

Esseite:
Going by both method you put up there, since you want to restrict the options to just both...

I think Obi is right on the contractual method... if for anything, that method works but comes with it's own detriment which other aspect of the economy is supposed to tackle.. the other method only increase import businesses which in turn exports scarce forex.

The contractual method of driving up interest rates would drive people out of business, most especially import businesses, where the people can no longer afford the price of commodities and then the businesses are forced to sell at a loss while closing shop. E.g the current auto business and so many others.. now the detriment is, it creates unemployment for those whom can't afford to go into production... which slows down the productive drive Obi is eager about.

Solution:

Nigeria has potentials, but the problem is individuality, everyone wants to own it alone, that has been the bane of growth in Nigeria. 10 -20 importers in groups can set up large manufacturing plant while the Govt comes in to assist as part shareholder, which is applicable 100% in China and our own Dangote refinery.. but here most would rather prefer to go it alone.. e.g (okey & sons) etc no pun intended..

Solution 2:

The Govt should setup crowdfunding controlled and monitored by the CBN/EFCC for various start-ups projects, this would encourage new businesses while bringing transparency.. this would in turn curb unemployment drastically while ensuring the distribution of wealth.

You deserve a big hug . Well done

AdamuKD:

Ok, let's assume that he is not right . let your tinubu come and tell us how he is going to run the economy

But he will never show up, you know why? ... Sincerely With you, you already know the answer. But you are blindly supporting him why?

This is an academic discussion pls

kahal29:


I only focused my attention on his policy proposal to the problem of Inflation in Nigeria. Others can take him up on some of the other policy prescriptions.

In case you missed his complete policy proposal, here you have it as you can't judge a book by it's cover and that part even came last in his post;


We will enforce the legal framework protecting foreign investors and their indigenous partners. This is the only way to improve our business environment and tamper capital flight.

We will stop borrowing for consumption. All loans must be invested in regenerative projects. Inflation is a factor of spending on goods and services outstripping production. Since we have not resolved the minimum wage issue, We will not use wage and price controls to fight inflation. Rather, we will pursue a contractionary monetary policy. We will mop up excess liquidity by reducing the money supply within an economy

Corruption and financial recklessness/mismanagement is the major cause of inflation in Nigeria not over supply of money.

mycar:

In case you missed his complete policy proposal, here you have it as you can't judge a book by it's cover and that part even came last in his post;


We will enforce the legal framework protecting foreign investors and their indigenous partners. This is the only way to improve our business environment and tamper capital flight.

We will stop borrowing for consumption. All loans must be invested in regenerative projects. Inflation is a factor of spending on goods and services outstripping production. Since we have not resolved the minimum wage issue, We will not use wage and price controls to fight inflation. Rather, we will pursue a contractionary monetary policy. We will mop up excess liquidity by reducing the money supply within an economy

Like i said i only picked his policy recommendation on inflation cos those others are not directly related to the Problem of Inflation in Nigeria.

stonemasonn:
Corruption and financial recklessness/mismanagement is the major cause of inflation in Nigeria not over supply of money.

I completely agree with you that inflation is not always a monetary phenomenon in Nigeria.

kahal29:


I completely agree with you that inflation is not always a monetary phenomenon in Nigeria.

Just refining our oil to meet local consumption along with neighboring countries alone will go a long way in managing inflation.

Don't let OBIdients hear u o. Anything rotten excreta Peter Obi pours out, they swallow without thinking

Kingspin:
Mr critics, did you put into consideration other plans Peter Obi offered? Like creating good environment, reduced cost etc.
Because no part of economy work in isolation.
From my little knowledge of economy when the environment is favourable many thing put shapes. Also there is no perfect economy anywhere in the world, what ever is working for you continue doing it and improve. Remember is only his economic proposal/plan.

For me the first step is to restore confidence in Nigeria and Nigerians.

Over to Atiku and Tinubu.

You have not said anything really. Just generalized comments. Create good environment how?? Restore confidence how You talk like there's a special button Peter Obi has to turn Nigeria to eldorado. PO only tells u what u like to hear, he has no solutions

stonemasonn:
Just refining our oil to meet local consumption along with neighboring countries alone will go a long way in managing inflation.

Who will refine the oil Do u know the volume of petroleum products Nigerians consume on the daily? Smh.

blackpanda:


Who will refine the oil Do u know the volume of petroleum products Nigerians consume on the daily? Smh.

are you asking me? Abi refining oil is now metaphysics.

Agboriotejoye:
Not true. The op is dead wrong.

Do you even understand what is being said

stonemasonn:
are you asking me? Abi refining oil is now metaphysics.

It's your suggestion so u should answer.

You be Apc urrchin already, so no matter what Mr Obi says, it must be disputed by you and your fellow zombies.. Which idea has your drug lord tinubu propounded?

blackpanda:


It's your suggestion so u should answer.

My brother! It just takes will power and commitment to do the right things.

stonemasonn:
My brother! It just takes will power and commitment to do the right things.

Will power to do what exactly Y'all just love generalized empty comments that provide no solution. You rather hold on to fantasies that face reality. How does govt that has no money to pay salaries, then produce petrol for 220million people Smh

Mr. Critic, the only thing you saw in what Peter Obi posted was monetary policy.
You didn't see other plans? Did you consider them at all

Meanwhile other presidential candidates were busy throwing banters and accusations.

Obi is still the best choice

blackpanda:


Will power to do what exactly Y'all just love generalized empty comments that provide no solution. You rather hold on to fantasies that face reality. How does govt that has no money to pay salaries, then produce petrol for 220million people Smh

Abeg stop talking trash, is it not Dangote that is building refinery, why must it be government alone? They can't even manage the existing refineries.

Well, I don't know if he has plans for this but the real solution to the current inflation in Nigeria is reduction in cost of production.

stonemasonn:
Just refining our oil to meet local consumption along with neighboring countries alone will go a long way in managing inflation.

This is another angle to problem of inflation in Nigeria which is linked to exchange rate pass through via imports.

kahal29:


Like i said i only picked his policy recommendation on inflation cos those others are not directly related to the Problem of Inflation in Nigeria.

That is where you got it wrong, or better-still, those other parts lie the answers to your question.

blackpanda:


Do you even understand what is being said

Abeg help me ask him Oooo

This is because when you say that you will fight inflation with contractionary monetary policy it means that you have agreed that inflation is a monetary phenomenon i.e inflation is demand pull which in lay man's understanding means too much money in the system chasing few goods and services. However you and I know that this is not the case in Nigeria. There is no enough money circulating in the system in the first place not to even talk of a case of too much money in circulation chasing available goods and services.