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Published On: Mon, Apr 28th, 2014

Setting agenda for new CBN Governor

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By Eze Onyekpere

The new governor of the Central Bank of Nigeria, CBN, has a lot of challenges to inherit from the former leadership. These have to do with the continuing macroeconomic challenges besetting the economy. First, he has to reposition the CBN as a team player in the administration; not in the sense of condoning corruption, but ensuring coordination and harmony between the monetary and fiscal authorities in the country.

In essence, he has to build back the confidence of the authorities and reassure Nigerians of his desire to improve monetary policy. The new governor has to creatively seek ways to re-assure the executive and legislative authorities of the need to maintain the independence of the CBN.

He has to co-opt stakeholders to facilitate the maintenance of the status quo in the extant CBN Act. The CBN needs this autonomy to effectively discharge its functions.

Nigerians expect greater transparency and accountability in the management of the funds and policies of the CBN. There must be clear policy implementation pathways that are not based on the rule of the thumb of the new governor. Whilst it is expected that in undertaking banking supervision, sound risk management should be mainstreamed, it is also imperative to create an elbow room to encourage banks to bring back vibrancy to the economy.

The need to control inflation and retain the extant single digit inflation rate is imperative. The CBN needs to continue measures to control excess liquidity in the system. But this has to be balanced with the challenge of growing the economy, which was abandoned by the previous leadership, in terms of ensuring a reasonable lending rate. The fact that investors and producers borrow at very high uncompetitive rates cannot allow the economy to grow; it cannot facilitate job creation, enhance value addition, nor improve efficiencies and grow the capacity utilisation rate of industry. Access to credit at a reasonable rate for the real sector and SMEs is vital for economic growth and poverty reduction and should therefore be one of the major policy concerns of the CBN. The target should be to attain single digit lending rate.

Also, a situation where the deposit rate is so low, and below the inflation rate, is a clear way of telling Nigerians not to save. A person who gets less than 5 per cent interest on his savings when inflation hovers around 8 per cent is definitely losing some money. Deposit rates should encourage savings. Further, there should be a link between the deposit and lending rate. It is suggested that it should not exceed 500 basis point corridor. Getting loans at reasonable rates or getting paid a good deposit rate should not be a benefit enjoyed only by blue-chip companies and high net-worth individuals, but should be a right enjoyed without discrimination by all Nigerians who use the banking system. A situation where an individual deposits money in a bank and gets paid 5 per cent deposit rate, only to be asked to pay an interest of 25 per cent when he comes to borrow, is not only unconscionable, but a clear desecration of the concept of banking.

Banking is not the same as state/CBN sanctioned exploitation. It must be based on reasonable ideas that can generate a win-win scenario for both the banker and the depositor.

Available evidence indicates that the ability of the CBN to sustain the naira from possible depreciation in 2014 and the medium term may be dependent on a monetary policy stance, vis-a-vis global crude oil supply and capital flows in 2014.

The poser is the reason for the depreciation of the naira despite our formerly buoyant external reserves, which can provide cover for over seven months imports and our better growth rates compared to industrialised economies over the years. Although CBN has adopted an exchange rate band for some years now; it may be imperative to try some new ideas recommended by experts and Vision 20:2020. To boost the value of the naira against major international currencies may require the avoidance of the creation of new money. This would imply the direct allocation of foreign exchange (using dollar certificates) earned from oil to the three tiers of government, rather than monetising it. This is the recommendation of Vision 20:2020, which has since been ignored by monetary and fiscal policy. The former CBN governor, Charles Soludo, attempted to implement the idea, but was stopped by the authorities. Experts note that this would bring inflation to as low as 3 per cent, rein in excess liquidity, and guarantee single digit prime lending rate. Essentially, it will guarantee monetary and price stability; swell external reserves; and improve access to credit by the real sector. This will lead to increased economic growth, job creation and development.

The governor needs to continue with the interventionist approach of the last administration in creating intervention funds targeted at distinct sections of the economy. However, the disbursement of these funds should be specifically tied to clear deliverables, targets and milestones, which will facilitate monitoring and evaluation of results.

We need to see the continuation of support to agriculture under the Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending, NIRSAL, and to continue providing credit guarantees to enable banks lend to farmers. Continued support to the Mortgage Refinance Company is also expected to boost availability of adequate housing In Nigeria. The CBN also needs to continue with the cash-lite and cashless policy initiated by the former administration.

Nigerians will love to see cleaner notes coming out of our banking system. The idea of asking banks to pay a charge before replacing the notes is an abdication of one of the core duties of the CBN. No other agency has the authority and power to issue legal tender, except the CBN. Banks did not spoil the notes and therefore should be under no obligation to pay anything, even if it is a token before the CBN replaces old notes.

Eze Onyekpere is on linkedIn

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