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Published On: Tue, Jul 29th, 2014

Emefiele’s debut CBN monetary policy meeting

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By Boniface Chizea

The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, for the first time chaired the Monetary Policy Committee meeting; the 96th, held on July 21-22, 2014. If we empathize we must admit that this is the Governor’s first real test which for most appointees in this situation must be the cause of some anxiety and by all accounts we must agree that he has come out of it smelling real fine. This is the second test the Governor has passed in flying colors. The first test which is probably not really over was the decision to hike the capital base for Bureau De Change (BDC) from N 10 Million to 35 Million with the cautionary deposit also increased to N 35 Million. The House Committee on Banking and Currency it would be recalled invited the Governor to attend to explain why he is embarking on such a policy which from the perspective of the House was bound to worsen the unemployment situation in an environment which is suffering from the consequences of jobless growth.

The Governor has since engaged with the legislators with the legislators reaffirming that they do to not intend to do anything that would infringe on the autonomy of the Central Bank pledging their determination to partner with the Governor as he embarks on and confronts the challenge that would be thrown up as he discharges the mandate of his office. The discussions and conversation on the BDC are still on-going as one still reads that the Association of Bureau De Change operators have presented their views on the way forward for the Governor’s consideration. There is no doubt that this matter would all be resolved amicably for as long as all parties appreciate and respect where the boundary of authority is drawn. But it is good omen that the Governor is getting this pledge of support from the House Committee which could constitute a stumbling block on the path of the Governor as he attempts to discharge his responsibilities.

The Governor had soft landing, as it were. All the 10 committee members were in attendanceI would hate to be a member of such an important Committee and let the first opportunity to meet with the Governor at his first outing pass me by. It must be stated here for the avoidance of any doubts that the Governor really calls the shots even as we canvass that members must have and demonstrate a robust measure of independence to ensure that decisions are taken in unfettered manner to the greater interest of the determination of monetary policies. In fact a new member also joined the meeting having been recently confirmed by the Senate. What is obvious is that this is an appointee of the immediate past Governor. We were also told that all members voted alike as the decisions were taken. It shows a meeting of minds and is something that should reinforce the decisions taken as we begin to interrogate why the Governor has not kept fidelity to his promise to facilitate a reduction in interest rate as he had earlier indicated during his confirmation hearing.

As should be expected the committee took a decision to hold all the key parameters as they were before the meeting and we must be reminded once again that that was the view of all the members not that of the Governor alone. What has happened is that the economy has enjoyed relative stability since the last MPC meeting in May. The exchange rate at the retail-Dutch Segment of the market we were informed remained flat at N 157.29/US$ and at the inter-bank market, the selling rate opened at N 162.20/US$ and closed at N 162.95 representing a depreciation of N 0.75 or 0.46 per cent. And at the BDC segment of the market the exchange rate opened at N 167.00/US$ and closed at N 168.00 representing a depreciation of N 1.00 or 0.6 per cent. This is remarkable if we factor in the fact that over this period the operations of the BDC must have been somewhat disrupted by the agitations that arose from the decision to increase the capital base of operators.

It was observed that at some point in time the Naira, for the first time in a long while, appreciated against the dollar at the parallel market due mainly to inflow from foreign investors as they purchase the country’s debt instruments in addition to inflows from autonomous sources particularly the oil companies. The exchanged rate was N 161.9 just before one particular weekend but at the start of the following week it quickly appreciated to N 162.45 as there arose speculative attacks by economic agents who did not believe that the appreciation would endure. So it became a self-fulfilling prophesy as the up surge in demand resulted in a drop in the equilibrium rate of exchange.

This development sign posts one of the problems we have had with the management of the exchange rate; it is easy to place a bet on what is likely to happen and stand a chance of not missing the mark as the rate of exchange only goes southwards. It will be good if we are able to change this characterization of the foreign exchange market before long as it is not good to be that predictable. Even the reserves that had witnessed continuous depletion because of the problems arising from vandalism, outright theft and illegal bunkering in the context of sustained high demand experienced an accretion. Gross official reserves we were informed rose to US$ 40.20 billion by July 18 from US $ 37.31 at the end of June 2014..

The governor ensured that the Committee in the meeting’s communique kept faith with his promise to foster a human focused approach to monetary policy making. And the need for the MPC decisions to take into account the long run impact on employment level, wealth creation and growth of businesses was also emphasized. The governor has no doubt started well while we wish him the best of luck as he continues to grapple with the enormous responsibilities of his office.

 

Dr. Boniface Chizea via chizea@yahoo.com

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