CBN Calls for Greater Policy Coordination to Support Economic Recovery

Obinna Chima

The Central Bank of Nigeria (CBN) has called for greater policy coordination and synchronisation of efforts to enhance economic growth in the country.

The Deputy Governor, Operations Directorate, CBN, Mr. Edward Adamu, made this call in his personal statement at the January 2020 Monetary Policy Committee Meeting, a copy of which was obtained at the weekend.
“To be clear, I view policy coordination across economic management institutions at the federal level as essential as response coordination across the tiers of government,” he said.

In his contribution, Adamu, stated that data presented highlighted some important downside risks, which included insecurity and rising inflation, especially food. Among other consequences, he pointed out that inflation beyond a certain threshold could undermine the output recovery gains.
Yet, to effectively address inflation, its origin and character must be well understood, the CBN Deputy Governor said.

“Among others, I could see the dominant influence of high production cost and distribution bottlenecks in the current inflation dynamics.
“Of course, the effect of the easy stance of monetary policy cannot be completely discounted. However, given that food prices have remained the major driver of the overall domestic price pressure, the role of money can be assumed to be minimal. As such, the correct policy-mix must continue to include a focus on alleviating supply from both production and distribution sides,” he said.

He noted essentially, there is no one policy instrument that can mitigate all the risks in the horizon.
On her part, the Deputy Governor, Financial System Stability, CBN, Mrs. Aishah Ahmad, noted that notwithstanding the positive outlook for the banking sector, the CBN must remain vigilant given the uncertain macro environment.

According to her, the CBN would continue to monitor risks and vulnerabilities in the economy and their impact on financial system stability.
“In this respect, it should continue monitoring restructured and unrestructured industry loan
portfolios, sustain dynamic stress testing and ensure banks build operational resilience by strengthening their cyber defenses and business continuity planning.
“Consolidating the industry’s earnings profile will also be critical to grow capital buffers; which will be important to enable it to manage likely financial and macroeconomic headwinds,” she explained.

Ahmad noted that rising prices coupled with negative/low growth was a serious challenge confronting monetary policy in Nigeria and many African countries.
She pointed out that structural, long term policy initiatives to diversify the economy remains critical, saying that containing the pandemic immediately would be paramount to economic resilience and recovery.

“Thus, a proactive and coordinated vaccine procurement and distribution strategy is required to improve business sentiment and promote a positive macro-economic outlook. “Policy priorities must also include continued financial support to sectors most impacted by the pandemic and those most fundamental to recovery,” she added.
In his contribution, the Deputy Governor, Economic Policy Directorate, CBN, Dr. Kingsley Obiora, said the banking system has also maintained its stability and resilience during this crisis.

He disclosed that total gross credit rose to N20.48 trillion in December 2020, an increase from N19.72 trillion in November 2020 and from N17.57 trillion in the corresponding period of 2019.
Also, non-performing loans (NPLs) stood at 6.01 per cent in December 2020, compared to 6.06 per cent in the corresponding period of 2019. This, he said reflected strengthening of risk management practices, the Global Standing Instruction (GSI) policy and regulatory forbearance that had allowed banks to restructure credits impacted by COVID-19.

“But even as the domestic economy begins to recover, imbalances remain. COVID-19 infections have resurged, with 123,000 confirmed cases and 1,500 deaths.
“Inflation pressure has also persisted, as headline inflation increased to 15.75 percent in December 2020 from 14.89 percent in November 2020 and is at its highest level since December 2017. The upward pressure has been largely driven by food inflation, which rose to 19.56 percent in December 2020 from 18.30 percent in November 2020.

“This appears to be attributable to structural factors arising from disruptions to supply chains, insecurity in food producing areas of the country, infrastructural deficiencies and increases in both the pump price of Premium Motor Spirit (PMS) and electricity tariffs. Such inflationary pressures emphasise the critical,” he added.