Why CBN retains rates, by Godwin Emefiele

• Enjoins operators to subscribe to The Guardian project

Contrary to speculations that the Central Bank of Nigeria (CBN) is afraid of taking risks by retaining monetary policy rates (MPR) at the same level for the eighth time consecutively, the apex financial sector regulator has said its actions are based on researches that it conducted.  

CBN Governor Godwin Emefiele, who disclosed this in an exclusive interview with The Guardian in Abuja, also explained that industry operators actually preferred that be retained to avoid exchange rate fluctuations.

Emefiele, however, stated that once economic pressures — inflation, high exchange rate and unemployment — begin to ease and foreign reserves have been grown to comfortable levels, the CBN would respond by tweaking the rates.

He equally urged operators to subscribe to The Guardian’s Financing the Economy Project, saying: “We must find out what role everyone is playing, because even those who are not playing any role, when you begin to ask them questions, they will know that everyone is becoming conscious.”

He commended The Guardian “for creating opportunities that can spur discussions about the role everybody is playing to ensure that the economy grows and the country comes out of recession.”Emefiele, who has accepted to write the foreword to the 100-page plus compendium, which will be published at the end of March 2018, also encouraged all operators “to work hard to see to it that this country comes out of recession in spite the present situation.”

Based on popular requests, The Guardian, which recently held the Manufacturers Award, had to postpone the publication and public unveiling of the Financing The Economy Project, to enable operators and subscribers across the financial services value chain prepare their data for the epoch-making compendium.

The all-gloss compendium, earlier scheduled for publication this November, will now be presented at a special ceremony in Lagos, at the end of the first quarter of 2018, and thereafter circulated nationwide. Emefiele, who also spoke on a wide range of economic issues, in defence of the rates retention, told The Guardian that what the CBN was trying to adopt a very balanced approach towards tackling all the issues earlier mentioned, instead of taking up the gauntlet all at once.

He said: “A research by the Central Bank of Nigeria showed that when inflation exceeds a threshold of about 12 per cent, there is nothing you can do to stimulate growth; growth will adversely be impacted upon. Giving the Central Bank’s primary mandate, price and stability is very important.

“People are saying: ‘Reduce interest rate,’ but we have conducted our own survey twice at least and we asked people both manufacturers and traders: ‘What do you prefer at this time; we know that you would love to have a strong exchange rate, and a low interest rate. But unfortunately, interest rate and exchange rate move in inverse direction, and if you are going to make a choice between these two, which one would you prefer?’

“They said the one that impacts more heavily on them is exchange rate and to be able to tackle exchange rate, you must first rein in inflation, and this means that you needed to adopt a fairly tight monetary policy.”

Against this backdrop, he argued that the Monetary Policy Committee (MPC), decided to hold rate down at 14 per cent in order to effectively rein in inflation, while it creatively tackled other issues to stabilise the economy, which helped to take it out of recession.

He noted that tackling these issues holistically, a reason it embarked on various intervention programmes, will help the CBN build enough ammunition to fight anyone who tries to play games, especially with the exchange rate.But he admitted that Nigeria’s exit from recession was not solely of the CBN making, saying: “It is a joint effort of government complemented by the monetary, fiscal and trade authorities.” 

He noted that many factors contributed in plunging the country into recession. Chief among them were the fall in global oil prices; political tensions in Europe, Russia, Middle East and Africa, including insurgency in various parts of Nigeria; and the normalisation of the United States economy, which hitherto was pumping liquidity into the world market, but was later reined in.