tutebeng wrote:CBK has been failing with respect to monetary policy for almost a year now, but most importantly, there is no theoretical link between the causes of inflation and interest rates, and therefore it is no wonder that the increases in the CBR will have many more undesirable consequences than deal with rising inflation. That said, I would not favour a Euro-bond-given our balance of payments position- which is anything from favourable. The answer lies in pursuing mixed economy policies. Manage credit to certain sectors, restructure OMO and reduce inter-mediation role of banks and craft out a set of new taxes-particularly capital gains tax etc. There is no reason to stifle credit to industry in light of the high levels of unemployment in the economy.
Restructuring OMO will be the best thing. Increasing the CBR is a double edged sword coz though theoretically inflation is being driven out, status quo remains as its replaced by increased lending rates lumped on consumers. Blame is not only on Ndung'u but guys at FinMin as well. Why not instead of only the 100% ID on new investments they add an incentive of lets say 20% Corporate tax for 3-5yrs for new FDI's China style and reduce the number of licences required + create a one stop shop for the same sort of the IPC but on a grander scale like other countries economic centres. I think with this we'll attract more FDIs and get the Forex we really yearn for, create the much needed employment, if manufacturing firms set up shop we'll partly have reduced our imports etc. What MPC is doing is basically killing SMEs who have been as of recent the economic drivers and employers.
'They say money cannot buy me happiness but when i compare when i had none and now, i'm happier' Kevin O'leary