Emefiele: We can only do little with current monetary policy

Godwin Emefiele, governor of the Central Bank of Nigeria (CBN) says little can be done to tackle the current economic challenges using the tools offered by the monetary policy.

The governor made this statement while delivering a lecture titled ‘The Dilemma of Monetary Policy During a Recession: Potential Options for Nigeria’ at the 2017 annual conference of Nigerian Bar Association (NBA) in Lagos

According to Emefiele, the challenges facing Nigeria are falling Gross Domestic Products (GDP) growth rate, rising inflation, persistently high interest rates, falling foreign exchange reserves and depreciating exchange rate.

He said the CBN has always used monetary policy implementation to control interest rates and money supply to moderate inflation and achieve economic growth adding that since the problems were occuring simultaneously and needed to be dealt with over a short period of time.

He said the real dilemma faced by the country is that there are significant trade-offs in outcomes of economic variables regardless of what specific monetary policy the nation implemented.

“For example, one would expect that given the bank’s core mandate to pursue low inflation, the central bank would implement policies geared towards that.

“In order to tackle high inflation, the correct monetary policy would be to tighten money supply either by increasing the cash reserve requirement (CRR) of banks, mopping up money through increased open market operations or raising the liquidity ratio of banks.

“While doing any or a combination of these would help moderate inflationary pressure, it could ensure that interest rates remain high and may even be inimical to restoring economic growth in the short term.”

He said the apex bank would need the support of the NBA to build synergy towards the achievement of the various policy options enumerated.

He said the CBN is leading other stakeholders through the Financial System Strategy 2020 (FSS2020) in order to achieve stability in the financial system.

“FSS 2020 intends to apply the instrumentality of the law as a vehicle to fast-track the development of Nigeria’s financial system.

As such, this is one area where the CBN would need the support of the NBA.

“In this regard, the financial services regulation coordinating committee led by the CBN, is putting together a robust framework that will adequately promote stability of the Nigeria’s financial system.”

He said it was important the NBA be willing to partner with the CBN in areas like legislative advocacy to ensure quick promulgation of robust legislation in support of chosen policy options and establishment of commercial courts to facilitate speedy resolution of commercial disputes.