CBN’s Monetary Policy Committee Meeting And The Frenzy

The atmosphere in Nigeria’s financial sector is in a state of frenzy. Stakeholders are befuddled on why the apex bank’s monetary policy committee has not met. This is because the CBN had twice postponed the meeting under the leadership of its new Governor. The first postponement scheduled to hold shortly after the appointment of Mr. Cardoso and his four deputy governors, was obviously put on hold to enable them settle down. The reason could also be that the new management team needs time to study and digest President Tinubu’s 8-point agenda and current trends in the financial system to align them with his vision. Mr. Cardoso at the NASS screening had promised to ensure the independence of CBN. He also pledged to ensure that the CBN under his watch will play its role as a catalyst for growth, and adviser to the government. He said “his-CBN” will shy away from interloping responsibilities. It is also a common knowledge that President Tinubu had ordered a clean house of the Bank believed to have veered of its mandate under the immediate past governor. It is also a public knowledge and concern that the Naira has been under attack by speculators and rent seekers, a chronic headache for the Bank’s new helmsmen. Forex illiquidity has also become malignant. Thus, convening the MPC meetings amidst these challenges may not be an immediate priority rather they have been unobtrusively addressing and stabilizing the financial sector. The gains of these efforts are visible, though the parallel market is still chaotic. The postponement of what was supposed to be its last meeting for the year further heightens the palpable fear and uncertainties of the consequences of the MPC not meeting. Stakeholders’ fear cannot be dismissed as Nigerians battle economic hardship, rising food inflation and unbridled Naira depreciation. However, the CBN Act 2007 section 12 saddles the Committee to ensure price stability and support economic policy of the federal government. The Committee consists of the Governor as the chairman, the four deputy governors, two members of Board of Directors, two members appointed by the Governor, and two members appointed by the President to formulate monetary and credit policy. It is the highest policy making organ of the Bank responsible for reviewing economic and financial conditions in the economy. It also determines the appropriateness of policy applications in short to medium term, and regularly reviews Bank’s monetary policy framework, and adopt changes when necessary. The Act mandates the Committee to communicate monetary and financial policy decisions effectively to the public and must ensure the credibility of the model of transmission mechanism of monetary policy. It is to meet bi-monthly, except otherwise (as it is the case presently) or on emergency. Until the appointment of the present CBN Governor, the Committee had met four times under the last dispensation. It is also a public knowledge that boards of federal parastatals and agencies were dissolved by the President with many yet to be reconstituted. The CBN board is one of those dissolved and yet to be reconstituted, neither is it a public knowledge that the President has nominated his two candidates. Hence, the Bank presently does not have the required number to form a quorum, nor the Governor and his deputies have the constitutional mandate to overtly make certain monetary policy decisions without the approval of the Board. The concern by the public is normal particularly the way economic saboteurs have been attacking the Naira and manipulating the parallel forex exchange market. The concern is also noted considering the latest inflationary figure, 27.33%, released by the National Bureau of Statistics (NBS). But to allay the fears of the public, the Bank’s spokesman, Dr. Isa Abdulmumin had on the eve of the scheduled September MPC meeting issued a press statement to announce its postponement. He regretted any inconvenience the change in date may have caused the Bank’s publics. The hullabaloo over non-holding of the meetings may have been misplaced but expected. And with Nigeria’s current economic reality, it behooves the economic managers to be strategic in meeting economic saboteurs at their wits ends. Notable economists and financial technocrats have entertained worries over continuous postponement of the organ’s meeting. They believed it may further heighten economic uncertainties. Mr. Boluwafemi Agboladun, a chartered accountant, expressed fears that the silence from the Bank amidst economic turbulence is unsettling as no concrete reason was given for not holding the meetings. He was however quick to add that the strategy adopted so far by the new management of the Bank is yielding positive dividend. There is stability in the forex market, and Naira exchange rate is no longer volatile. The strategic management adopted by the CBN so far, he noted, is commendable, making currency peddler unsure of what next is coming out from the Bank. Agboladun also felt that the new CBN Governor may have decided to start the new year with his own monetary policy calendar after he would have gotten a clear heads-on of the fiscal direction to align it with his monetary policy philosophy. He stressed that, it is better for the CBN and the government to have a clear distinction in roles, unlike the muddled and overlapped responsibilities witnessed in the last administration. Feranmi Deepak, a public commentator, was not surprised that the meeting, though statutory, has suffered two postponements. He was only worried that the outcome of the meetings would have avail the public of the monetary policy direction of Mr. Cardoso, as it would have road mapped investment decisions by local and foreign investors. The CBN, he observed, may also be taking its time coming out with its agenda. This, he noted, may be due to the ongoing economic diplomacy drive of the President who has been unrelenting in his travels, marketing Nigeria. Therefore, the CBN, he said, “may be collating all he has been saying to the investing community to develop its monetary policy roadmap as government banker and advisor”. He was optimistic that the MPC meeting would assume

MPC Postponement, Blessing In Disguise – Uwaleke

The postponement of the MPC meeting for the second consecutive time could be a blessing in disguise, Professor Uche Uwaleke said. The Central Bank of Nigeria had on Monday announced the indefinite postponement of the Monetary Policy Committee meeting. The meeting, early scheduled for Monday and Tuesday, November 20 and 21, has again been postponed for the second time since Dr. Olayemi Cardoso became the governor of the apex court in September. The CBN’s Director of Corporate Communications, Dr Isa Abdulmumin, who gave this hint in a text message, confirmed that “MPC is not holding”. However, in a chat with NIGERIAN ANCHOR, Uwaleke, who is a Professor of the Capital Market at the Nasarawa State University Keffi, noted that had the MPC had held in September, it most likely would have jerked up the MPR thereby further increasing the cost of doing business and reducing access to credit. “This would have been the outcome of the meeting against the backdrop of the pressure by the IMF for an MPR hike to reduce money supply which would not have had any significant impact on the rising inflation,” he said.

MPC: Aligning fiscal, monetary policy for economic growth

The benefits of collaboration in any human endeavour cannot be over-emphasised. Every part jointly fitted together produces the whole.Monetary policy affects financial conditions and the level of bank reserves. Whereas, fiscal policy can put money directly into or out of people’s pockets. Without fiscal policy as a tool to fight inflation, the federal government is working with one hand tied behind its back.The fiscal approach is anchored by the Federal Government whose role is mainly to moderate the excesses of other operators in the economy, and provide law and order and enabling operating environments.The Central Bank acts alone when it hopes that its policies would change the economic dynamics without any input from the fiscal side.Fiscal policy can slow spending directly by raising taxes or reducing government direct payments without necessarily having the intermediate step of raising the unemployment rate.Modest upfront fiscal contraction would reduce the cumulative amount of monetary tightening necessary, thereby improving the odds of avoiding recession.In this regard, analysts opine that the CBN must not operate in isolation, but collaborate with fiscal authorities to achieve sustainable economic results. Ineffective policiesMost economic policies were not as effective as they ought to be during the last administration due to the lack of collaboration on the part of fiscal and monetary authorities as everyone seems to be running their ‘own thing’ as it were.While the Finance Ministry appears to be focused only on borrowing from all possible quarters and increasing tariffs to raise more revenue for the government, the CBN was preoccupied with shielding the Naira from unnecessary pressure through rampant importation of items that could have been produced locally, thereby depleting the foreign reserves and spiking exchange rate.Analysts note that one of the dilemmas of Nigeria is fiscal indiscipline that is seen in the actions of the political office holders. In the last dispensation, while the CBN was trying to grow the economy through expansionary policies targeted at increasing capital flows (or credit) to the real sector, the fiscal authorities, on the other hand, were raising taxes on many items that affect their activities, which the CBN was trying to expand.And that was why at every opportunity, suspended CBN Governor, Godwin Emefiele always called for an alignment between fiscal and monetary policies.According to Emefiele, the country’s monetary and fiscal authorities must “collaborate and work in harmony to accelerate Nigeria’s economic development even as he added that “finding a sustainable solution requires a broadened participation of colleagues from the fiscal side.”Speaking at the 149th meeting of the Monetary Policy Committee of the Central Bank of Nigeria (CBN), the Apex Bank’s Acting Governor, Folashodun Shonubi, said there was a need for fiscal and monetary authorities to align together to be able to address present economic challenges.Reading the communiqué at the end of the two-day meeting, Shonubi noted that subsidy removal, exchange rate liberalization and disbursement of palliatives, would have pass-through effects on inflation. He therefore, called “monetary and fiscal authorities to sustain collaboration towards addressing the inflationary pressure and incentivize domestic investment to reduce unemployment and boost output growth.The Monetary Policy Committee “…enjoined the Federal Government to continue to explore policies to improve investor confidence in the Nigerian economy and pave the way for foreign and domestic investments.“Members emphasized the need to attract investments, particularly, to auto manufacturing, aviation, and rail industries to boost non-oil revenues.”Experts have continuously argued that all these can only happen when both of them work in harmony. For instance, from time to time, the Federal Government comes up with its fiscal policies based on national economic philosophy and objectives, to aid or readjust the economy.CBN then makes monetary policies to ensure availability of money at the right cost, adequate volume and appropriate type to facilitate the cost effectiveness of production and trade. However, we saw monetary authority make incursions repeatedly into the economic policy territory hitherto exclusively reserved for the fiscal authority in Nigeria.This has then made the CBN a punching bag for every frustration in the economy in regards to monetary and fiscal balancing of macroeconomic issues. Breaking from the pastIn trying to break away from the past mistakes, President Bola Tinubu quickly appointed seasoned economist Wale Edun as his Special Adviser on Monetary Policy. The objective was to have the two sides coming together to align policies before they become public document.And true to type, Nigerians did see it in the MPC decision as the monetary policy rate hike was by 25 basis points contrary to what analysts and industry players had projected.In arriving at the decision, the MPC considered the outlook for the domestic economy with the policy options to either hold or hike the policy rate to offset the moderate increase in headline inflation.With headline inflation still on the rise due to the effect of fuel subsidy removal and the naira float which is driving the prices of goods and service upwards, the Apex Bank new that raising rates like in previous times will be counter-productive to what the monetary authorities wanted to achieve with the policy reforms that has been embarked upon by the fiscal authorities.Knowing that when the palliatives begin to flow, there would be much liquidity in the system, the Committee had to be proactive in line with current thinking.According to the CBN Governor, “Considering the option to hold, the Committee reviewed the impact of the continued rise in inflation on various macroeconomic variables, noting the potential dampening effect on output growth. Members agreed unanimously that the previous series of rate hikes had indeed greatly moderated the pace of price increases.“The option to continue to hike the policy rate, albeit moderately, also presented a strong alternative. This is premised on the expected liquidity injections into the economy from the recent policy developments and the likely impact on inflation.“The Committee remained cautious in arriving at a policy decision as Members noted the need to continue to support investment which will ultimately lead to the recovery of output growth. The balance of these arguments thus leaned in favour of a