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By Henry Uche
Capital Market expert, professor Uche Uwaleke, has dissected the Central Bank of Nigeria Governor’s speech and identified some gaps that needed to be addressed. He made this known recently in Lagos during a chat with journalists.
Recall that the CBN governor had at the 58th Annual Bankers’ Dinner & Grand Finale of Chartered Institute of Bankers of Nigeria (CIBN)’s 60th Anniversary in Lagos, drew the attention of Nigerians especially financial experts, economists and management professionals to the economic realities in some emerging and developed economies like US, UK, South Africa and how their leaders are managing the ugly situation in their respective countries.
In his speech, the CBN Chief however maintained that economic fundamentals play crucial roles in the effectiveness of monetary policy actions in addressing macroeconomic challenges, hence the need to build a robust institutional framework to support monetary policy in achieving its objectives of ensuring fiscal and monetary stability.
CBN boss who acknowledged that Nigeria is facing significant macroeconomic and social challenges, had anticipated a growth rate of 2.3 percent in the third quarter of 2023, and a projected increase to 3.97 percent in the fourth quarter as various reforms take effect.
He claimed that challenging global and domestic macroeconomics environment, Nigeria’s financial sector has demonstrated resilience with key indicators of financial soundness largely meeting regulatory benchmark.
“While absolute inflation is still rising, the declining rate of growth indicates progress. CBN is confident that with continued tightening measures for the next two quarters, we will be able to effectively manage inflation.
“Under my leadership, the Central Bank of Nigeria will vigorously address these issues. We will tackle institutional deficiencies, restore corporate governance, strengthen regulations, and implement prudent policies. We assure investors and the business community that the economy will experience significant stability in the short-to-medium term as we recalibrate our policy toolkits and implement far-reaching measures.
“In navigating these challenging economic times, we’re fully committed to ensuring price stability and financial system sustainability. We will stand by Nigeria and Nigerians. Our actions will be fully guided by the principles of transparency, responsibility, and a deep commitment to Nigeria’s progress”
While x-raying the 30 page speech, Uwakele admited that Cardoso’s 63-paragraphs keynote was quite inspiring, however, laced with a few contradictions.
For instance, Uwaleke weighed Mr Cardoso’s confident when he (Cardoso) affirmed, “With continued tightening measures for the next two quarters, we will be able to effectively manage inflation”
“As part of the tightening measures, the CBN has been carrying out ‘regular Open Market Operations (OMO) to mop up excess liquidity from the banking system’ As a matter of fact ‘an OMO auction was recently held with a stop rate of 17.5% for the one year tenure’, he says. The Bank has also removed “the cap on the remunerable Standing Deposit Facility (SDF) to increase activity in the SDF window and manage liquidity”
The capital market don maintained that the aggressive tightening measures ended up turbo-charging the interest rates environment thereby shrinking credit to the real sectors of the economy and are inconsistent with the banker’s expectation of “an increase in the GDP growth rate to 3.97% in the fourth quarter” of 2023.
“By his own admission, challenges in the economy ‘have led to increased interest rates, discouraging investments in productive activities. He equally noted that countries such as Turkey and Argentina have experienced upward inflationary pressures mainly due to supply shocks, despite several policy rate adjustments”
“Mr Cardoso asserts that “our monetary policies will aim to achieve price stability, foster sustainable economic growth, stabilize the exchange rate of the naira and reduce interest rates to facilitate borrowing and investments in the real sector”. This statement fails to take into cognizance the policy trilemma facing central banks. Monetary policy tightening may succeed in reducing inflation (especially if caused by monetary factors) and stabilize the exchange rate but not a reduction in interest rates simultaneously. This is an economic reality”
“Mr Yemi cites Brazil, Mexico, and Indonesia as examples of countries ‘with low unemployment rates of 7.8%, 3.1%, 5.4% respectively’ According to him, ‘these are unemployment levels that we in Nigeria should aspire to achieve’. This statement contradicts the NBS new methodology and its latest unemployment figure of 4.1% which is below that of Brazil and Indonesia.
“In paragraphs 26 and 27, the CBN Governor talks about developments in the payments landscape but missed the opportunity to promote the eNaira and disclose its current status.
“The 30-page speech found no space for other key projects of the Bank, such as the InfraCo and the RT200 programme designed to improve forex supply”
He added that much as the plan to refocus the CBN was laudable, every effort should be made not to throw away the baby and the bath water.
“Be that as it may, Mr Yemi Cardoso, in paragraph 30, makes a statement I consider the most impactful where he says, “It is crucial to give the same visibility to human condition data as we do to macroeconomic data to ensure that the expected economic progress benefits the masses and helps lift them out of their current dire conditions. This indelible statement should guide the path of monetary and fiscal policies going forward” he urged.
