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MPC meeting: CBN, policy makers and economic choices

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Central Bank of Nigeria’s (CBN) governor Godwin Emefiele

The Central Bank of Nigeria (CBN), just like every other Central Bank, is assigned the responsibility of managing the monetary and exchange rate policy of the Government.

But compared to most sub-Saharan African countries, Nigeria can be seen as one of the financial superstores in Africa. However, relative to the size of the economy and the financial needs, the financial system is still believed to be underdeveloped and still faces enormous challenges.

CBN, every year issues Monetary and Credit Policy Guidelines containing broad objectives and specific instruments of monetary policy for the year. It is arguable that these guidelines are yet to be fine-tuned for the year 2018, partly due to the absence of a full Monetary Policy Committee (MPC). Surely, the first meeting of the year will start today.

For the Lead Director of Centre for Social Justice (CSJ), Eze Onyekpere, the fundamental challenge of monetary policy is how to control monetary aggregates where the bulk of foreign exchange accrues to the government; fiscal revenue is oil-dominated and all receipts are paid into the Federation Account and shared out to the component governments, and each with statutory power to spend irrespective of the monetary policy implications.

“The implication of the above is that the final outcomes for monetary policy depend largely on the fiscal policy stance. It is equally noteworthy that monetary policy in Nigeria mostly reacts to the government’s fiscal behaviour in an attempt to accomplish the Central Bank of Nigeria’s primary focus on price and exchange rate stability and in doing such, there have been some deep divide between the Central Bank’s monetary targets and the outcomes.

“The widening gap in the divide between the CBN’s monetary targets and outcomes have raised questions on the role and effectiveness of monetary policy in the context of Nigeria’s strange fiscal structure.

“The persistent wide disparity between the targets and outcomes analysts have attributed to the source for financing budget deficit and the CBN’s inability to sterilise the huge liquidity impact of government spending, especially the ratio of recurrent to capital expenditure.

“In other words, the fiscal policy structure currently seems not to understand the monetary policy implications. There is the need to note that the major sources of instability in broad monetary aggregates (M2) are the volatile oil receipts, which results in different swings in reserves and the Government’s fiscal behaviour,” he said.

An Honorary Policy Adviser, Dr. Uzochukwu Amakom, said interest rate policy, exchange rate and hidden charges remain an albatross in the monetary policy equation.

“Since the liberalisation of the interest regime to be market determined, a central challenge has been the persistent high real interest rate for borrowers and very low rates for depositors.

“It is about 3-10 per cent for deposit rate depending on the amount and type and above 20 per cent for lending rate irrespective of the amount and type. The real lending rates hovering above 20 per cent has massive implications for the cost of doing business in Nigeria.

“Commercial banks have resorted to all manner of ‘hidden charges’ that still ensure that effectively, the real cost of funds is still very high while deductions from Automated Transaction Machine (ATM) still contradicts the directives that N65 should only be deducted when a customer from another bank makes use of another bank ATM three (3) times.

“The main discussion on exchange rates and their management in Nigeria has been the high volatility and the search for mechanism(s) for a market- determined rate where Government is the dominant supplier of foreign exchange.

“The sources of the volatility and the appropriate weights of the various explanatory factors for exchange rate in Nigeria remain an empirical question with two key variables, domestic price inflation and the nominal exchange rate standing out as probable explanatory factors, and each of these is linked to the fiscal behavior of Government,” he said.

As the MPC meets today, it needs to send out a strong message and review extant rates to tilt the economy on the path of growth and inclusive capture of the gains of economic growth.


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