John Danjuma Omachonu
The Monetary Policy Planners of the Central Bank of Nigeria, (CBN) comprising the ‘12 apostles’, with Yemi Cardoso, CBN governor, as the chairman will come out with another policy decision concerning the anchor interest rate, (MPR) tomorrow, Tuesday, as the two-day meeting commenced on Monday.
It is on records that since assuming office on October 5, 2023, Cardoso, has been making various efforts to stabilize the economy and tame the accelerating inflation, using the instrumentality of the monetary policy measures.
Cardoso had demonstrated seriousness on his job, through the painstaking exercise of selecting the members of the MPC, through which he expressed his commitment to strengthen investors’ confidence, attract capital inflows, stimulate domestic investment and ultimately improve the level of external reserves.
Indeed, under Cardoso, as the governor and chairman of MPC, there has been, arguably, some alignments in fiscal and monetary policies that have resulted in reducing policy somersaults.
However, the aggressive 750 basis points hike in the Monetary Policy Rate, by the 12 apostles of liberal economists, within three months of the committee may have brought a lasting pills that are being forced down the throats of many manufacturers and consumers, with serious impact on the economy, typified by rise in banks’ lending rates that have crowded out the real sector as well as drastic drop in capacity utilization of most companies .
The impact on manufacturers, consumers and SMEs may have exposed the limitations of monetary policy in addressing economic challenges hence the need for a balanced approach to economic policy built on synergy between the fiscal and monetary policies for the much needed development.
Specifically, president Bola Tinubu in his letter to the National Assembly, last year, proposed 12 members with five CBN officials, including Cardoso and his four deputies, Mohammed Abdullahi in charge of Economic policy, Bala Bello, Corporate services; Emmen Usoro, operations and Philip Ikeazor, Financial system stability as members of the committee.
Other members as approved by the Senate included, Director General, Securities and Exchange Commission, (SEC), Permanent Secretary in the Ministry of finance; Murtala Sagagi; Aloysus Uche Ordu; Aku Odinkemelu; Mustapha Akinwumi and Bamidele Amoo.
After the inaugural two-day meeting, Cardoso, announced that the committee voted to increase the benchmark interest rate by 400 bpts to a record 22.75 percent from 18.75 percent , much to the surprise of analysts and financial experts, who had anticipated a little hike in rate. The MPC also made a bold move to restrict money supply by increasing the cash reserve ratio to 45 percent, from 32.5 percent.
The two meetings of March and May witnessed similar hikes, the cumulative impact is what the economy is battling with today.
What Analysts Are Saying:
Some analysts say the CBN’s MPC Committee meetings so far may have demonstrated shifts toward inflation targeting, while the hawkish stance, with the attendant higher yields on fixed income market instruments may have also brought about strategic shifts to enhance transparency and accountability based on informed decision making as well as proactive approach to monetary policy transmission mechanism.
However, they are of the opinion too that the fiscal and monetary policy may be heading towards cross purposes as economic planners confront prospects of years of rise in consumer prices converging with growth rates plummeting to the disturbing levels in a decade.
The higher consumer prices were stoked in part, by rising petrol and electricity prices, according to the National Bureau of Statistics.(NBS).
Food prices, which account for the bulk of the inflation basket, are currently above 40 percent as at June while annual inflation is above 33 percent.
They also argue that inflation has been fuelled by pressure on the naira, which has experienced depreciation of over 100 percent, within the last few months.
With these developments, some analysts say further tightening will exacerbate the country’s economic woes and contradict the 2024 budget stimulus for growth.
Others, however say, recent developments, including rise in inflation, instability in the fx market as well as less accretion to the external reserves, may compel the ‘apostles’ to continue with their ‘wise’ stance that even Aliko Dangote, Africa’s richest man has had to complain about recently saying that there can never be growth with current lending rate.
The anchor rate is currently at over 26 percent and by the time banks add up other charges like overhead costs, among others, within the allowed CBN band, though, manufacturers may be signing lending rate of over 30 percent, in an economy with low purchasing power and high inflation and unemployment.
The fear now is that the Monetary Policy Makers in Africa’s largest exporter of crude may be creating another problem as they seek to solve one, considering the unintended consequences of earlier government policies like subsidy removal and rates unification.
This is because government seems to be in a panic mode, currently, giving the high level of hardship coupled with alleged protests being planned by the restive and hungry Nigerians.
Admitting the divide between the country’s fiscal and monetary policy, the analysts say the necessary harmonization of both policies will, however, take some time.
Victor Ogiemwonyi, an analyst and a retired Investment Banker, in an article, Unintended Consequences of Policy Making, published recently by metrobusinessnews.com, deplored alleged government’s penchant for throwing money after problems without foreseeing possible consequences.
“We rushed to budget billions of Naira for Palliatives, without a proper plan to implement, or even properly identify,beneficiaries to target, to ensure those who need it,really get it. In the end the results have been dismal at best.
The first unintended consequent of this palliative policy, was the Government and its Agencies going into the market to directly buy commodities, like rice, that was already in short supply and pushing up the prices, disrupting the natural supply chain, and stoking inflation that was already high, exasperating the situation and making these food commodities, also scarce, for even the rest of the population.
What we are doing now, with the new food import policy, is again causing another unintended consequence, pushing FX prices up and putting further pressure on the Naira. We have seen increases in Fx rates since the policy was announced . Asking importers to go and import food, when they will have to compete for the little Fx liquidity available to the market, means, many will turn to the black market to quickly, take advantage, of this food import policy widow, the Government has now opened for 6 months.
This will continue to push up FX prices as we have observed, and will now upset, the relative stability in the FX markets, achieved these last few months and will also now trigger other economic implications, and upend the monetary policies put in place, to ensure stability in the economy.
Our policy making, needs to be better evaluated before implementing, to avoid this chaotic situation, we always create. So far, our policy making, has been one foot forward, and 2 steps backward.”
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Voting Patterns Of The ’12 Apostles’ For The Last Three MPC Meetings (Feb, March & May)
Period Feb%. March% May%
1.Mohammed Abdullahi: 400 150 150
2.Bala Bello: 400 150 150
3.Emmen Usoro: 400. 200 150
4.Philip Ikeazor. 300 150. 150
5.Murtala Sagagi: 100 100. 100
6.Aloysus Uche Ordu; 450 200 100
7.Aku Odinkemelu. 300 150 100
8. Mustapha Akinwumi; 400 200 150
9.Bamidele Amoo: 400 200. 100
10.Lamido A.Yuguda 300 100 150
11.Lydia Shehu Jafiya 400 Hold 100
12. Olayemi Cardoso. 425 200 150
Chairman’s Summarising Comments:
February:
As the nation awaits the outcome of the ongoing MPC meeting on Tuesday, MBN brings part of the comments of the chairman for the last three meetings:
“Recognizing that the current inflationary pressures are multifaceted and not solely monetary in nature, particularly exacerbated by the surge in food prices due to various factors, including low productivity, insecurity, and elevated energy costs post fuel subsidy removal, underscores the necessity for a comprehensive approach beyond monetary policy. Addressing these structural challenges calls for a holistic response involving non-monetary stakeholders to implement appropriate actions.
The price stability mandate vested in the Central Bank necessitates making difficult decisions to steer the economy towards recovery. After carefully weighing the costs against the risks confronting the economy, I firmly advocate for an assertive tightening approach to counter the prevailing inflationary pressures. While cognizant of the potential drawbacks of a contractionary monetary policy stance, such as impacting output growth and lending rates, constraining credit availability and affordability to smallscale businesses and consumers, as well as affecting government borrowing costs and liquidity management, I believe these short-term sacrifices are crucial in our pursuit of achieving price stability and sustained economic growth.
Given the imperative to curb inflationary pressures, which could pose social challenges and impede long-term growth prospects, I am persuaded that
the MPC must adopt an assertive stance by tightening monetary policy measures, with a medium-term inflation target of 21.40% by the end of 2024
in mind. Therefore, I cast my vote in favor of increasing the Monetary Policy Rate (MPR) by 425 basis points to 23.0 percent, raising.”
March:
“…It is my view that the argument for a further hike in Monetary Policy Rate (MPR) to complement the rate hike at the last MPC meeting is valid. This increase in the MPR will help curb inflationary pressure and reduce the negative real policy rate. Most importantly it will further strengthen the anti-inflationary signal of the Central Bank of Nigeria (CBN) as we transition to an inflation targeting regime. This, however, is predicated on the assumption that sustained fiscal and monetary policy coordination will result in policies that address the multitude of structural factors required for long-term investment and economic growth in Nigeria. Without addressing the structural issues in agriculture, electricity, and energy sectors we may continue to see persistent increases in food inflation.
For these reasons, I align with other members of the MPC in voting for further tightening of monetary policy stance. My vote is to:
1. Increase MPR by 200 basis points from 22.75 per cent to 24.75 per cent”
May:
“After accelerating sharply in the first two months of 2024, the pace of inflation has slowed in the last three months and although year on year inflation rate inched up in April, the month-on-month trend shows that inflation is gradually decelerating. The economy, however, still faces several macroeconomic headwinds and the upside risks to inflation persists.
The latest outlook suggests a slight elevation in inflation arising from the
possible upward revision of the minimum wage, adjustment in electricity
tariffs, higher fuel prices, continued low agricultural output due to insecurity, the elevated consumption and spending during festive season, and the pass through of exchange rate depreciation and volatility. These will continue to be closely monitored and necessary actions taken to avoid a reversal of the gains achieved thus far and to ensure sustained disinflation.
We must also not lose sight of the fact that inflation is the major problem. A tighter monetary policy stance with the accompanying higher interest rates are policy tools we have at our disposal to solve the problem from a monetary angle, even as we admit that there are structural issues that must also be addressed alongside by various stakeholders.
The efforts of the fiscal authority is noted, but fiscal reforms must be sustained,and we look forward to the positive impact that the outcomes of these efforts will have on the economic trajectory. The tax reforms and other fiscal measures to boost government revenue, and reign in fiscal deficit is commendable and recent developments in the oil sector targeted at significantly increasing domestic refining capacity bodes well for energy security, price stability, and reduced pressure on the foreign exchange markets.
The Bank must thus, continue to collaborate with the fiscal authority
to avoid fiscal dominance and ensure that sustainable non-inflationary
growth is achieved. After careful consideration, I was convinced to align with other members of the Monetary Policy Committee to vote for further tightening of the stance of policy.
I therefore voted to: increase MPR by 150 basis points from 24.75 per cent to 26.25 per cent.”