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CBN has over reached monetary policies – Ezun

Kunle Ezun is a Research Economist at Ecobank Nigeria Limited, with a vast experience in research and market development spanning over 10 years. In this interview, he speaks on the state of the economy, efforts by the Central Bank of Nigeria towards revamping economic activities, fiscal authority interventions among other issues. AFOLABI ADESOLA reports.

In recent times, the Central Bank of Nigeria (CBN) has been actively engaging in implementing policies that will ease economic pressures and tame cost of living for the ordinary man, how will you rate the Apex Bank’s efforts so far?
The Central Bank of Nigeria has done a lot in trying to target inflation and bring it back within the anchor rate of 6-9 percent.

However, what the CBN is doing now, may not have major impact because the CBN has over reached its monetary policies. A lot of the problems we have today, that are filtering into the CPI calculation are more of structural and that’s why we need the fiscal side to complement what the CBN is doing with monetary policies.

The problem we have today is about infrastructural input into the production of goods and services, in terms of good roads and power.

A lot of companies and industries that produce goods that are priced on the streets will tell you that they spent a lot on power and even on transportation to get those good into the city.

So, a lot of the issues that will help reflect and bring down inflation rate are more structural than monetary, so whatever CBN is doing, is to help put the exchange rate in check, so that there are no loose naira for speculation in the FX market.

But major input that will bring down inflation rate are more structural and these are not within the CBN purview.

Well, analysts have been clamoring for the harmonization of fiscal and monetary policies to help speed up economic activities. Notwithstanding this, the CBN has been steadily intervening in the Forex Market. In your own view, how long can the CBN carry on with these interventions without getting the fiscal support it needs?
For the Central Bank, there are major mandates required to enjoy price stability.

Price stability entails three prices: Interest rate, Inflation rate and Exchange rate.

Over time, they have actually focused on exchange rate because people believe that if Exchange rate is stable, (because it is a major input into the calculation of the CPI) then we can begin to see a gradual reflection for a reduction in the inflation rate.

If you can remember vividly, a major reason why we had the inflation rate climbing so quickly last year was when we had the issue with exchange rate but now the exchange rate is more stable around 350/$ – 360/$ this has helped to stabilise the naira against the dollar in the market and has helped reduce the inflation rate.

But on how more can the CBN do to tame the inflation rate, I think the CBN will continue to try because recently the CBN was at the national assembly and the argument was to see how soon we could achieve a single digit exchange rate that will enhance on lending to the real sector.

The CBN government did say that as far as they are concerned they will only be disposed to reducing the interest rate if inflation rate gets to 10 or 11 percent.

But how can soon can we begin to see inflation rate around 10 or 11 percent? My take is that before year end 2017 or perhaps by Q1 2018, we will begin to see inflation rate around ten percent or single digit.

Before then, we need the interventions from the fiscal authorities to provide an enabling environment in support of what the CBN is doing. We need to see how much improvement can be achieved in infrastructural development, especially in power supply, that will help reduce the cost of production.

I want to see an efficient transportation system in the country that will help enhance the movement of goods and services from the rural to the urban center, because all of this filter into the calculation for inflation rate, once we are able to have a complementary effort from the fiscal side, to the monetary side.

All of this working together with the Central Bank will be able to highlight a more predictable fiduciary outlook that will help stabilise inflation rate around single digit before the year end 2017.

What positives can we expect in terms of exiting recession by Q3 or year end?
Actually I am one of the economists that believed that by Q3/Q4 we should conveniently exit recession. So far, the economy has thrived as the CBN has single handedly supported the economy and we are gradually pulling out of recession.

But looking at the records released sometime in April we could see that yes we recorded a negative growth but the rate of change was lower than what we witnessed in Q4’16.

So if things work like we all planned, and we continue to see the kind of support we are seeing from the CBN in terms of access to FX liquidity, because my take is that for us to quickly move out of recession we need to keep supporting the SME’s.

Most Economies that have jumpstarted their economy out of recession have done that through the support of their SME’s, and that is what the CBN has done by providing FX of USD$20,000 every quarter to eligible SME’s. So if we continue to see this supply, this access to FX, then we can begin to see traction and activities that will enhance production.

Majorly what we need to do is support consumer expectation, once individuals are able to enhance their consumption, this is where the budget kicks in.

We’ve seen a budget of N7.4 trillion and we expect that if the budget is judiciously implemented in line with the Economic Recovery and Growth Plan of the Government, then we should be glad and be looking forward to exiting the recession by Q4 2017 and in a worst case scenario in Q1 2018.

Because we need to record a positive growth of two consecutive quarters to be able to say we have successfully exited recession. I think with what government is doing, and with every sector moving in one direction, that is how to jump start the economy out of recession.

Quote: “My take is that before year end 2017 or by Q1 2018, we will begin to see inflation rate around ten percent or single digit.
Before then, we need the interventions from the fiscal authorities to provide an enabling environment in support of what the CBN is doing. “

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