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Emefiele CBN

Experts divided as to whether CBN has lost monetary policy ideas to control recession, inflation

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More experts have continued to review the recent Monetary Policy Committee (MPC) meeting where the Central Bank of Nigeria (CBN) retained all rates at a time inflation is galloping and recession is hitting harder across the country.

Though after the lengthy presentation at the end of the MPC meeting of the apex bank last week, some financial experts in the country expressed the opinion that despite that traditional monetary policy tools at the moment are less effective; having reached their limits in stimulating investor confidence, hiking interest rate would not buoy foreign investor confidence in returning to the Nigerian market.

According to them, cutting interest rate at this time may not necessarily spur real sector lending by Deposit Money Banks (DMBs) but generate appetite for government securities and speculative foreign exchange (FX) positions.

But a set of analysts are still not comfortable with many of the CBN’s measures, saying several unguided pronouncements by many officials of the bank at different for a do not match the official position of the bank and this always result in misinterpretation of critical issues by key decision makers in the economy.

They argue that it was a combination of these misinformation over time that created the panic in the financial market and it snowballed to forex crisis and recession especially when the real sector is almost dead.

Besides, the feelings of this set of experts was recently agreed to and made public even by a senior staff of the bank, the Director of Policy of the Central Bank of Nigeria, CBN, Mr. Moses Tule who strongly posited that “The on-going economic recession has persisted owing to application of wrong prescription by non-professionals”.

Speaking at the Chartered Institute of Bankers of Nigeria, CIBN, roundtable meeting organised on the current economic recession in Abuja, Tule said “Some came in as doctors into the macro-economic management and are giving the tools of medical doctors to advise on how to solve the problem of recession. Some came in as carpenters and they are using carpentry tools to advise on the problems of economic recession; some came in as engineers and they are using their tools to advise on how to address economic recession.

Dr. Ken Igboanugo is Port Harcourt based financial consultant. In a telephone interview, he said “My worry is that the CBN started getting it right when the situation had become worst.

He said many of these rush to train, fund and support Small and Medium Enterprises (SMEs) from any part of the country ought to have started immediately this present administration came in last year on the advice of the Governor of the CBN, considering the fact that he was not new with the administration.

According to him, the CBN governor, Godwin Emefiele failed to rightly advice the presidency and the economic team on arrival of the danger ahead. Such thing never happened because if it did, Nigerians would have known that and now, we all will be saying that ‘he said it’.

“We are all aware that Emefiele was there with former President Jonathan and continued when Buhari came on board, to my mind, he did not manage his experience and economic observatory intelligence well enough, otherwise, Nigeria had no business with forex crisis or the current full blown recession.

Corroborating issues with Igboanugo, Mallam Sani Ndanusa, an economist and retied banker living in Lagos said “The CBN research department has been failing in their duties in churning our credible statistics and that has made the department to be as good as dead in the apex bank now”.

“In real duties of a nation’s apex bank, some of these statistics coming from the National Bureau of Statistics ought to have been earlier observed by the CBN and they ought to have started working ahead to even limit the chances of the report coming out as they are.

“In other climes, statistics from the apex bank are always superior to others coming from other agencies.

“But now in Nigeria, everybody is waiting on a bi-weekly basis to know or hear from NBS and I think even the CBN also wait on them to get figures so as to work with it. It is absurd and cannot help us go anywhere.

He therefore called for reforms on the bank so that they can come alive to their responsibilities.

Only two days ago, a Central Bank of Nigeria (CBN) survey has shown that private sector operators expect the naira to further depreciate and inflation to increase further before the end of the year.

Survey titled, “Business Expectations Survey, BES, for Fourth Quarter, 2016”, ‘was of the belief that inflation and borrowing rates were expected to rise in both the current and next quarters.” The CBN stated that “Respondent firms were pessimistic on the macro economy in Q4 2016. The pessimism was driven by the opinion of respondents from all the sectors: services, industrial, wholesale/retail trade and construction.

“Respondents’ pessimism in the volume of total order and their internal liquidity positions (financial conditions), dampened the volume of their business activities in the current quarter. Similarly, respondents’ pessimism on access to credit further lessened their internal liquidity positions in the quarter under review.

“Participants indicated a positive outlook in the volume of business activities, as well as improved prospects for employment in the next quarter. The sectors with the prospects for employment were services, wholesale/retail trade, industrial and construction sectors.

Another expert who bared his mind on the matter, Mr. Robert Omotunde-led analysts at an investment banking and securities group, Afrinvest, said the holdback in the return of foreign capital is largely tied to the lingering currency risk and perceived misgivings regarding the credibility and transparency of the current FX market structure.

It would be recalled that the CBN Governor, earlier in his speech at the 2016 annual bankers’ dinner, titled “Policy Options for Reversing Nigeria’s Economic Downturn”, hinted that with inflation at over 18 percent; the CBN would be abjectly failing on one of its cardinal objectives if it cuts interest rates at this time.

According to him, for those who say CBN needs a rate cut to spur growth, high inflation is highly inimical to economic growth.

“Indeed, many empirical studies have estimated the threshold level at which inflation becomes significantly growth retarding to be 11 per cent for developing countries. With ours at 18.3 per cent, one must question the judgment of cutting interest rates at this time. Finally, I think it is important to underscore those interest rates reflects not just the cost of capital but also the cost of doing business, and so we need to also look at interest rates from the perspective of the lender. Given that most banks have to individually provide security, power, and other infrastructure, it is not surprising that some of these costs are passed on to customers in the form of high interest rates,” the governor stated.

Whereas most investment analysts said they are in accord with the MPC’s decision nevertheless, the pin drop silence regarding the apprehension on the credibility and transparency of the operations of the interbank market remains a concern yet to be allayed.

As it today, naira seems to have been left alone to its fate and the problem is that nobody can say this is where the economy is heading to in first quarter of 2017.


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