James Emejo writes that the apex bank’s resolve to refrain from joining the bandwagon in adopting a contractionary monetary policy stance amidst the global uptick in inflation, demonstrates the bank’s avowed commitment to run a people-focused, growth-stimulating central bank
The global commodities and food supply distortions created by the war had caused ripple effects worldwide with some advanced economies as well as developing countries already witnessing dramatic increases in energy and food prices.
It simply means that so much money is currently chasing after fewer goods and services as a result.
In reaction, monetary authorities have moved to raise lending rates and applied other restrictive measures to rein in inflation and achieve price stability.
Given that Nigeria is not isolated from the effects of the global energy crisis which had affected the prices and availability of petrol and diesel -pass-through effects on other commodities and services, most analysts had predicted that the CBN would have acted accordingly to raise the Monetary Policy Rate (MPR) as well as deploy another restrictive measure towards addressing the situation, especially given that the current interest rate at 11.5 per cent had been sustained since September 2020.
MPC’s Response
However, the Monetary Policy Committee (MPC) of the central bank at its regular meetings last week, the second in the year, resolved to retain the MPR otherwise known as the interest rate at 11.5 per cent with the asymmetric corridor of +100/-700 basis points around the MPR.
The CBN also left other monetary policy parameters unchanged namely the Cash Reserve Ratio (CRR) at 27.5 per cent and Liquidity Ratio at 30 per cent.
The MPR is the rate at which the CBN lends to commercial banks and often determines the cost of borrowing in the economy. The MPC also voted to maintain the Cash Reserve Ratio (CRR) at 27.5 per cent as well as the Liquidity Ratio at 30 per cent.
The CBN governor said six out of the 10 MPC members present voted to retain monetary parameters, adding that while loosening could trigger liquidity surfeit in the system, a tightening stance would impact the fragile recovery of the economy, reverse credit expansion and yet, fall short of taming inflation.
The CBN Governor, Mr Godwin Emefiele, who read the committee’s communiqué, however, expressed worry that whereas global prices had gone up, this had been compounded by a shortage of supply of petroleum products.
The CBN, however, expressed optimism that in the medium term, the proposed take-off of the Dangote refinery this year would help to improve the supply of petroleum products in the country.
Emefiele said the CBN remained optimistic that food prices would trend downwards in 2022 as security agencies sustain efforts to subdue the activities of bandits to allow farmers back to their farmers.
He said, “And now what we are saying is that if farmers can access their farms, do they have the wherewithal to procure the inputs, seeds, fertilizer and other inputs with which they can go back to the farm and farm? We are making all those available. And that is why we remain reasonably optimistic that food prices would moderate in 2022.”
He added that the MPC further noted with concern the impact which the global price increase in petroleum and other products is having practically on all Economies pointing out that this had resulted in imported inflation on the Nigerian economy.
The committee believed that specific actions were required to ensure that the trend does not continue given the adverse consequences and aggressive rising price level could have on the cost of living and purchasing power of Nigerians.
Emefiele noted that before the Russia-Ukraine war, MPC was optimistic that the moderate decline in inflation was sustainable due to the positive impact of good harvest on price levels but expressed worry that, whereas global prices had gone up, this had been compounded by the shortage of supply of petroleum products.
He added that the rising price of diesel had been compounded by the inadequate electricity supply which has adversely impacted domestic prices.
The MPC, however, advised the CBN and the fiscal authorities to take specific and urgent actions to avoid many power generating stations shutdowns for turn-around maintenance, resulting in the current unwarranted shutdown of generating assets.
The CBN said the committee is nonetheless, relieved that food inflation declined marginally due to good harvest.
He added, “Although some scarcity is expected as we approach the planting season, the Committee is optimistic that with the high level of strategic grain reserves of the CBN, it is relieved that food prices would remain relatively moderated.”
The committee further advised the apex bank to redouble its developmental finance initiatives aimed at boosting domestic food output which would help in moderating food inflation going forward, thereby moderating headline inflation.
A Commitment to the People
The CBN’s careful policy choices could, however, be traced to Emefiele’s commitment since assuming office as the CBN governor in 2014, where he had consistently assured Nigerians that the bank under his leadership would deploy people-focused policies to drive the economy.
This resolve was demonstrated at the last MPC meeting where the CBN has had to restrain itself from joining the bandwagon to raise rates but rather opted to pursue the growth of the economy by continuing with its credit intervention programme for farmers as well as to other critical sectors of the economy even despite criticism from the International Monetary Fund (IMF).
The CBN had all excuses to tighten monetary policy given the global headwinds but chose to apply wisdom in the general interest of the fragile economy and vulnerable Nigerians.
Apart from the hardship which a contractive policy would have produced, the movie would have also negated the promise made to Nigerians for people-friendly policies.
No doubt, today all critical economic sectors particularly agriculture have benefitted immensely from Emefiele’s policy disposition.
Emefiele had in June 2014, unveiled his vision to ensure that the apex bank is more people-focused with policies and programmes geared towards “supporting job creation, reducing the high level of treasury-bill rates, improving access to credit for MSMEs, deepening our intervention programme in the agricultural sector and building a robust payment system infrastructure that will help drive inclusion, in addition to key macroeconomic concerns such as exchange rate stability, financial system stability and maintaining a strong external reserve”.
Analysts’ Perspectives
Reacting to the CBN’s resolution at the MPC meeting, however,
Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr Chijioke Ekechukwu, told THISDAY that the apex bank had reasoned that tightening the system would amount to more hardship and further reduce money in circulation as well as contract facilities.
He said, “Analysts expected tightening of system, at the last MPC meeting, considering that we are in a global community and both U.K and USA increased their Monetary Policy Rates in reaction to the inflationary trend arising from the war.
“In the case of Nigeria, cost of living worsened as a result of high prices of petroleum products and their attendant scarcity- the High prices of general goods and services arising therefrom.
“But CBN reasoned that tightening the system would amount to more hardship and further reduction of money in circulation and reduction in the availability of credit facilities.
“CBN also reasoned that inflation rate which they had worked so hard to reduce, would begin to go hyper. So in their wisdom, they retained all rates and ratios.”
However, on his part, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr Idakolo Gbolade, said the CBN should have instead applied a restrictive monetary policy to respond to current challenges. He argued that raising MPR would have been more beneficial to the economy.
He said, “The central bank’s continuous maintenance of MPC parameters is not realistic given the present effect of the war between Russia and Ukraine because the parameters have not changed the continued diminishing value of the Naira.
“The Nigerian people are going to witness more hardship in the coming months because there is a continuous rise in food inflation and energy cost.
“Nigeria has also not benefitted as it should in the increased price of crude which about $130 per barrel because it has increased subsidy payment by the government which will, in turn, affect funds to be used for capital projects.”
CBN Credit Expansion Programme in Order
The CBN governor had also insisted that its credit intervention programme has continued to help stimulate consumption and growth as well as boosted Gross Domestic Product (GDP).
Emefiele, while reacting to the recent call by the International Monetary Fund (IMF) through its 2021 Article IV Consultation Report, that the CBN should consider scaling down its credit expansion programme as this was likely to cause market distortions in the long run, argued that the bank’s credit expansion drive had also stimulated the manufacturing sector and shielded businesses and households from the negative impact of the COVID-19 pandemic and other external vulnerabilities.
