CBN: No Magic Wand to Fix FX Volatility Except Exports

James Emejo in Abuja
The Director, Monetary Policy Department, Central Bank of Nigeria (CBN), Mr. Moses Tule, yesterday said it would be wrong to expect the apex bank to singlehandedly address the depreciating naira without complementary efforts by the fiscal authorities and Nigerians in general.

He said the value of the local currency will probably continue to fall in the short term until there are significant efforts to produce and export in order to earn foreign exchange as well as reduce undue pressure on the naira.
He said: “When you don’t export, then expect a fall in the value of the naira,” adding that there’s nothing the CBN can do about it.

Speaking in Abuja at the 12th business managers’ round-table themed, “The Realities of the Nigerian Economy: Recession and the Way Forward,” which was organised by the Chartered Institute of Bankers of Nigeria (CIBN), the CBN Director also said the Monetary Policy Committee (MPC) of the apex bank had issued early signals indicating that the economy was nearing a recession unless drastic efforts were taken by the fiscal authorities.

He noted that even when interest rate was relatively low in commercial banks as a result of the CBN intervention, the fiscal authorities failed to complement the efforts.

He, however, praised the resilience of the informal sector of the economy in holding through the current recession and moderating its harsh impact on Nigerians.
He said a quick fix to the present economic predicament was unlikely largely because past governments had not done the right thing to diversify from oil.

Tule told journalists: “As you saw in the presentation we made, from September 2015 on consistent basis, the MPC had made allusions that imperatives for coordinating fiscal and monetary policy couldn’t be overemphasised.

“I think especially in a recession and we have desperate policies: every policy angle is going in a different direction: there’s no way the country could get out of recession.”
Notwithstanding, he said there had been remarkable improvements on the part of the fiscal authorities to quicken an early exit from recession.

He said: “I wouldn’t agree that there’s no improvements in fiscal policy, there’s so much happening but I think the onus is on the fiscal authority to publicise what they’re doing.
“They are doing a lot already. But perhaps in a recession like this, you really need to blow your trumpet because what you need is building confidence. The louder the trumpet, the greater the number of people the sound reaches.”

He also said the current situation called for an array of interventions from the fiscal side.
According to him, “There’s no way out because fiscal policy management provides the leadership for macroeconomic management in any country. Monetary policy only comes as complementary policy.

“In all climes, fiscal policy provides the leadership and when monetary policy has reached its ends, and it could no longer stimulate output growth, fiscal policy must step in with huge injection and this is not a new recommendation, the fiscal authorities are aware of this but as you are aware, government is looking for external funding to do exactly this.”

However, an associate Professor of Finance and Head, Banking & Finance, Department, Nasarawa State University, Keffi, Dr. Uche Uwaleke, said the CBN has the responsibility of channelling excess funds in the system to the real sector to help jump start growth instead of resorting to monetary tightening at all times.

In an interview with THISDAY at the round-table, he said the CBN could help “ease monetary policy a bit to see how it can help to restart growth in the economy”.

He said: “I don’t agree that monetary policy is completely handicapped as far as exiting recession is concerned. Now, look at the monetary tightening policy the CBN had been adopting since January- they had an MPC meeting in March where they increased policy rate from 11 percent to 12 percent and in July the MPR was again increased to 14 percent.
“Now, in spite of these sustained Increases in MPR, inflation rate has not come down and what does that tell you…it tells you monetary policy tightening should be revisited.”