…whereas it mattered that the Central Bank governor did not wait to coordinate his fiscal policy direction with the finance minister, the danger that his depiction of the CBN’s monetary policy trajectory is ex parte, as it were, is a much worrisome one.


Five years ago, on resuming his first term in office, the governor of the Central Bank of Nigeria (CBN), delivered a “maiden address” that was much trailed because it appeared to conflate fiscal and monetary policies. Following what was a recent experiment with conducting monetary policy via a policy committee, and the guidance of members’ statements, the fear of a return to the days when the central bank was the source of (inflationary) ways and means advances to government was palpable.

Looking back now, and in a very qualified sense, the governor was probably ahead of his time. Today, the zero-lower bound in nominal interest rates against which central banks in the advanced economies struggle looks like a unique opportunity to take another look at central banks’ policy frameworks. Currently, the design of these frameworks has central banks focused on keeping inflation rates within politically-acceptable bounds. And to ensure that central banks do not come under undue political pressure, most are granted both legal and operational independence.

But that was before the Great Recession, when central banks had to resort to unconventional policies to boost their different economies. For whatever they are worth, tools like quantitative easing and outright monetary transactions straddle the monetary and fiscal policy divide. The challenge these tools pose for policy making is to find out what works, rather than test monetary policy for ideological purity. Against the background of general price levels in the advanced economies remaining stuck to the floorboards, even as domestic output rises and labour markets tighten, this tension between functional policy responses and the precepts from the literature shows up again.

To take but one example off the ongoing debate over the direction of monetary policy, is there then a case for central banks’ policy frameworks transiting from targeting inflation to targeting nominal GDP? Given that what’s spent in an economy is the total that’s available, i.e. both from rising prices and economic growth, targeting price level changes alone was always going to result in a skew. This debate is on globally, and it matters that there is a local take on these issues. It mattered, therefore, that the governor of the central bank was minded to share his reflection on the domestic monetary policy space as part of his commencement of his second term in office.

…aside from the commitment to maintain a low inflation environment and keep the naira’s exchange rate stable, much of the governor’s address should have come from the office of the finance minister, especially the promise to boost the financing of the real sector of the economy.


First the basics of the monetary policy conversation. According to experts on the matter, there are three goals that monetary policy, irrespective of the tools that it leans on, aims at: price stability, including financial stability as a condition precedent; the external accounts balance; and the pursuit of development and growth initiatives. Globally, the conversation around monetary policy has been spurred by how central banks have played with the third goal since the Great Recession.

How do we play locally? There’s much to cavil with in the paper Mr. Godwin Emefiele presented to mark the commencement of his second term in office. If the more than “60% drop in crude oil prices between 2014 and 2016…led to heightened inflationary pressures, depreciation of our exchange rate, significant drop in our external reserves, and eventually, a recession set in during the 2nd Quarter of 2016”, how much of the subsequent recovery in key economic measures was the result of the improvement in the global oil market? And how much was due to domestic policy responses? And why do the quarterly output numbers for manufacturing not support the roseate optics from the purchasing managers index?

But, like I said, this is to nitpick. In truth, aside from the commitment to maintain a low inflation environment and keep the naira’s exchange rate stable, much of the governor’s address should have come from the office of the finance minister, especially the promise to boost the financing of the real sector of the economy. Some have argued that a less than present exchequer supported much of the CBN’s intervention programme over the last four years. But few will deny that coordination between the finance ministry and the central bank will matter even if the CBN were to remain a key player in the fiscal policy space.

Beyond that, though, there is the question of how well the CBN’s existing intervention strategies have turned out. Governance questions there are aplenty. But even these are besides the main point. Far more important are the covenants around which the intervention strategies have been structured. How many of the beneficiaries of the interventions have kept up with those covenants? To help answer this question, it helps to recall the antecedents of the intervention concept. The CBN began this process when the potential implosion of two banks, Intercontinental Bank and Oceanic Bank — with large exposures to key sectors of the economy, threatened the long-term health of those sectors. And the CBN intervened to put a floor beneath those sectors. Thus, the interventions were not meant, in that first instance, to have carried on forever.

The whole point of the Monetary Policy Committee is to bring both depth and diverse perspectives to the design of monetary policy. And this is the reason the governor of the central bank has only one vote on the committee.


So, it’s important that even when the CBN is going to be part of a fiscal space, whose outlines, preferably, will be the result of work done by the Ministry of Finance in coordination with the Budget Office, the governance of these must favour transparency. And no less crucially, will include sunset clauses for each benefitting sector. Accordingly, access to below-market funding costs must be only for the period of each beneficiary’s “infancy” — and this latter concept ought to be described as narrowly as possible. After which these businesses must be able to avail themselves of loans at market rates.

Nonetheless, whereas it mattered that the Central Bank governor did not wait to coordinate his fiscal policy direction with the finance minister, the danger that his depiction of the CBN’s monetary policy trajectory is ex parte, as it were, is a much worrisome one. The whole point of the Monetary Policy Committee is to bring both depth and diverse perspectives to the design of monetary policy. And this is the reason the governor of the central bank has only one vote on the committee.

Nor is it immediately obvious which is the worst option: not consulting the monetary policy committee ahead of his speech; or committing monetary policy to a five-year plan horizon (reminiscent of the old Soviet Union), even when we are all agreed that monetary policy, more than most, suffers from the effect of both dynamic inconsistency and time inconsistency.

But then, in a world in which traditional boundaries blur daily, who is to say that the Central Bank of Nigeria’s heterodox options will not win in the end?

Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.