Just like a drowning man will clutch at a straw, a drowning argument will clutch at a committee. That drowning argument is precisely what Jaindi Kisero is consistently flogging on the subject of interest rate. His latest on this is simply a tirade of desperation.
As I have already argued, consistency is clearly not one of Kisero's attributes while the demeanour of seeking to endear himself to those who can potentially look in his way with a favourable disposition seems to be his core competency, at the very least on this subject.
Kisero's latest rant is a further demonstration, for those who need one, that his grasp of even the basics on this subject is wanting. Let me give a just two examples.
One, Kisero insinuates that his beloved committee must have been held hostage. His evidence: he doesn't know its members, and its deliberations are likely to be held in camera. He then posits that "clearly, this is not how to conduct public policy".
If I understand him, he must meaning that this committee should at the very least operate like the police vetting team - where deliberations get live television coverage! - but ideally be subjected to a national referendum. After all, in his words, "the issue at hand is so critical for the development of the economy".
I agree that this is a critical issue, but there are so many other critical policies that are formulated and effected without playing to the gallery, e.g. tax policy, monetary policy among others. The public is simply informed of the basis of such formulation.
Secondly, Kisero asserts that the rules of supply and demand does not apply in a market that is segmented. I can only infer one thing from this assertion: basic economics is much more difficult than being a card-carrying columnist (ironically on economics) for the Nation Media Group. It obviously does not speak of the Nation Media Group (alone); it speaks of economic punditry in general. This is a point I have made before.
Then fact that a market is segmented or imperfect hardly means that the law of demand and supply has been overthrown. It simply means that the level of price that the market clears - in this case the interest rate - may not be be socially optimal. In this case, the price - which is merely a symptom - should not be the policy focus; instead all the efforts should be trained on the structural factors that speak to the segmentation or imperfections of the market. And you do not need a committee or a referendum to address these issues.
To non-suspecting members of the public, Kisero sounds very clever, even revolutionary, by observing that "you can not talk about supply and demand in such a segmented market, where liquidity cannot spread between all players". We have known all along that there are efficiency challenges arising from the segmented inter-bank market. This we know from proper rigorous studies and not hearsay.
If Kisero was the reading type, he could have known this from a study - Segmentation and Efficiency of the Interbank Market in Kenya - published in December 2012 by the Kenya Bankers Association Centre for Research on Financial Markets and Policy. This study makes very bold observations and conclusions.
It posits that the segmented nature of the inter-bank market has constrained banks' liquidity management strategies. According to the study, the efficiency of the inter-bank market can be enhanced through developing products with maturities of more than one day so as to have a term structure; increase the number of currencies traded; developing benchmark interbank rates; and enhancing linkages with other money market segments and monetary policy.To a lazy pseudo-analyst, the problem cannot be with any other party than banks.
Clearly if Kisero had read that piece of work, then his arguments could have manifested some depth. There can be two reasons why he evidently has not read this and any other analytical work that has been done in this area: One, he believes that any economist working for the banking industry (read yours truly) has a haughty attitude.
Two, he is most likely the type that Upton Sinclair was talking about when he quipped that "it is difficult to get a man to understand something, when his salary depends on his not understanding it", only that I will paraphrase it to read: "It is difficult to get a man to read something, when his salary depends on his not reading it."
If the mission of Kisero's latest commentary - cleverly captioned "What team must do on interest rates" - was to prescribe any solution, then it fails miserably. All it tells us is that the Nigerian Central Bank "took bold action, decreeing that all commercial banks must develop and implement a risk-based pricing model". If only he knew what risk-based pricing model is all about then he could have known that it is already happening in the Kenyan Market.
It gets more interesting when Kisero says that he "read somewhere that banks there have been made to compute each cost element of their prices and to publish them". I will ask: read where? I will then proceed to prescribe for him some reading.
The document to be read is called the Central Bank of Kenya Prudential Guidelines. in line with this guidelines, banks have been disclosing the total cots of credit and giving loan repayment schedules since the beginning of 2013. Will I be asking for too much? Well, I thought so too. All hopes are now on the committee,and in any case Kisero has already "read somewhere"!
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