CBN Seeks Measures to Tackle Global Shocks

Some members of the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) have called for the introduction of new measures to address shocks in the global environment.
They also expressed concern that the emergence of Mr. Donald Trump as the president of the United States may disrupt global markets and affect monetary policy.

These formed parts of the personal notes of the MPC members at their November 2016 meeting obtained in the communique posted on the CBN’s website yesterday.

Specifically, the Deputy Governor (Operations), CBN, Mr. Adebayo Adelabu called for the introduction of new measures to address shocks in the global environment. Adelabu argued that the influence of monetary policy in reversing recession was limited.

“Recent experience from Japan has lent further credence to this assertion. The Bank of Japan has been doing monetary stimulus since 2013 to wade off recession but the impact has been very minimal until the Treasury embarked on massive injection estimated at US$132 billion in fiscal measures in August 2016. The latest IMF WEO indicates that Japan is now on the path of exiting recession. The lesson here is the need for fiscal stimulus to jump start activities in critical sectors of the economy.

“Thirdly, with respect to the contraction in output, the critical mass of the challenge lies in the supply side of the economy, in which monetary policy has limited impact. It is commendable that the federal government is making efforts to boost aggregate demand particularly through the release of another tranches of bailout funds of about N388.3 billion to alleviate the burden of salary payments by the sub-national governments, but there are some critical private agents whose operations are crippled by debts owned by government parastatals and agencies,” he added.

He advocated for innovative financing options such as the securitisation of the debt to the contractors in order to provide some leeway to stimulate economic activities from both the demand and supply sides.
On her part, the Deputy Governor (Economic Policy), CBN, Mrs. Sarah Alade, said a combination of domestic and external events would have profound influence on monetary policy in most emerging economies in the coming months and that Nigeria was no exception.
According to her, the emergence of Donald Trump as the President of United States and his policies for United States would affect the world economy.

“The United States economy grew at 2.9 per cent in the third quarter of 2016, exceeding growth expectation. However, growth is projected to decline if Donald Trump implements some of the policies that he has campaigned on. These will have spillover effect on most emerging markets including Nigeria.

“Therefore monetary policy should be ready to act in the event of adverse impact on the economy. On the domestic front, foreign exchange scarcity will continue to impact growth negatively and keep inflationary pressure elevated. Since the policy direction is still fluid, I will support a hold on monetary policy rate.

“The election of Donald Trump as president has heightened global uncertainty: Although the policy direction of a Trump presidency is still being formed, some of the promises made during the campaign are bound to have a huge effect on the global economy. Mr. Trump has criticised the monetary-policy choices of the current Federal Reserve and could push the Federal Reserve in a significantly more hawkish direction, leading to a quicker than expected increase in interest rate.

“The rate increase will impact many emerging market economies negatively especially with the lower commodity prices and depressed consumer spending,” she said.
Furthermore, Alade said the CBN’s foreign exchange regime was having less than expected outcome and required fine tuning of the implementation framework.

Also, a member of the MPC, Dahiru Hassan Balami, noted that the technology sophistication of the Nigerian economy depends on its ability to innovate and introduce new technology.
“The wide gap between the interbank and the parallel rate is not a healthy development, because it encourages round tripping. The current sharing formula requesting that 60 per cent of allocation by the banks, goes to manufacturing while the remainder to other sectors seems to be inadequate.

“The monitoring strategy of the share and utilisation of the foreign exchange that goes to the manufacturing sector is inadequate. I had earlier argued for the adoption of an integrated approach to managing the scarce foreign exchange by customs and excise Department to play a critical role in making sure that foreign exchange allocated to the manufacturers are properly utilised in bringing in the inputs and put it to use in the production process,” Balami said.