Cardoso’s blushes saved as analysts expect ‘HOLD’ on first MPC meeting

An indefinite postponement of what could have been the first Monetary Policy Meeting of the Central Bank of Nigeria (CBN) to be presided over by newly appointed acting governor, Olayemi Cardoso, may have saved his blushes for another day, but it did not stop analysts expressing the view that any outcome from a first meeting, whenever it eventually takes place, would be a ‘HOLD’ on monetary policy rates (MPR).

A full assessment of the new CBN chief is still in the works by several observers and analysts, but many say they would rather wait to see the man as he acts on the job, given the nature of his appointment, with President Bola Tinubu choosing to lean on ‘political motivation’ rather than ‘independence’ for this appointment, notwithstanding that many agree that Cardoso has the requisite qualifications and some market experiences to occupy the position. But his political affiliation to the president dates back over 25 years, culminating in his 1999 tapping by the president to be his commissioner of budget and planning, when he was governor of Lagos State, making his appointment to the CBN role one that carries a political undertone. 

Cardoso formally assumed duty last week as acting governor of the apex bank, pending the approval of his nomination by the Senate.

His confirmation by the senate as the 11th CBN governor is expected to bring to an end the leadership impasse that has pervaded the apex bank following the suspension and eventual unceremonial resignation of former governor, Godwin Emefiele.

Prior to the CBN appointment, Cardoso had served as a financial sector leader with over three decades of managerial experience under various capacities as an economic and development policy expert for international organisations such as the World Bank, United Nations, Ford Foundation,  and is a former chairman of Citibank in Nigeria as well as being the first commissioner for economic planning and budget for Lagos State in 1999.

He is an alumnus of Aston University, Birmingham, U.K, where he studied managerial and administrative studies. He also holds a Master’s degree in Public Administration from the Harvard Kennedy School, United States of America.

Taking account of his academic and professional credentials, some economists have described his new position as a welcome development.

Sheriffdeen Tella, professor of economics at the Olabisi Onabanjo University, Ago-Iwoye, Ogun State, said Yemi Cardoso’s vast experience in the private and public sectors as well as in international finance, makes him a good fit  for central banking candidacy.

Tella noted that though his qualifications may not be sufficient enough for the CBN role, his  experience in central banking and advanced knowledge of economics are essential attributes which cannot be underestimated.

Away from the appropriateness or otherwise of his nomination, investors and Nigerians alike are all agreed that the new CBN chief would be walking a tightrope to initiate the much needed policy framework to stem the “hydra-headed macroeconomic” tide infiltrating the economy.

Some of the challenges ahead include setting up a framework to address the turbulent foreign exchange market amid the country’s poor FX liquidity and implementing an effective monetary policy to stem the persistent inflation surge which has seen Nigeria’s annual inflation rate hit an 18-year high of 25.8 percent in August 2023.

No doubt, the acting CBN governor has a challenging task ahead and one occasion that analysts see as a starting point to show his ability and readiness for the task is when he chairs his first Monetary Policy Committee (MPC) meeting, and provide some clues on how he wants to lead and guide monetary policy during his tenure.

The Monetary Policy Rate is a prominent monetary tool used by the CBN in setting targets and direction of other rates. It influences the amount of money in circulation as well as other macroeconomic aggregates and acts as a guide for all other market interest rates.

The central bank rate is considered the country’s baseline interest rate which the CBN utilises to check on the macroeconomic changes in the economy. It is also the benchmark interest rate used by commercial banks to disburse loans to individuals and businesses. Therefore, a decline in the MPR cuts credit cost while an increase raises cost of borrowing.

Based on the rationale that monetary policy is very critical to the economy and one of the  core functions of the CBN, Cardoso’s capacity to handle monetary policy and the macroeconomy in bringing balance leading to enhanced economic growth is of utmost concern to investors and Nigerians in general.

As Nigerians and other general observers of the country’s economy await the outcome of the CBN first  Monetary Policy Committee meeting under Cardoso, some analysts, who examined Nigeria’s economic indicators, have offered their expectations of the possible outcomes of this first meeting.

Charles Abuede, an analyst at Cowry Asset Management, emphasised that the forthcoming MPC meeting, which was postponed indefinitely by the CBN, will be the first for the acting governor and things are likely to go in a different direction in a departure from the norm.

Abuede noted that while it looks like the CBN has exhausted its arsenal in the battle against the insalubrious level of inflation that has found comfort in the economy, it is very likely that the committee will take a ‘hold’ stance to see what happens next to inflation which is now rising fastly.

He explained that this could be a good position in the bid to allow the effect of previous rate hikes permeate the economy through its transmission and also bring to steady, the 4-months lag effect, from policy pronouncements in Nigeria.

“On the contrary, taking a cue from the inaugural address of the president in May, he had stated that there will be an attractive interest rate which is expected to stay lower than the current level to allow investors repatriate profits and dividends back to their home country.

“This is the expectation of the president and the helmsman at the CBN must find an avenue to address this through the application of the unorthodox policy tools. To this, a moderation will be expected,” Abuede remarked.

Also offering his expectations and outlook on what is billed to be the first MPC meeting to be chaired by the new CBN governor, Uche Uwaleke, Nigeria’s first professor of capital market, said the postponement must have been necessitated by the recent changes in the apex bank.

Dwelling on this, Uwaleke said, “The MPC is made up of 12 members and five of them have just been replaced, including the chairman, by the President.

“My sense is that the replaced top officers of the bank may not be in the right frame of mind to actively participate in any crucial meeting of the bank.

“The CBN Act provides for six meetings of the MPC in a year. I believe a meeting can always be held to make up for any lost time as soon as a proper quorum is formed. They don’t have to wait till November to do so.”

Uwaleke, who is also the president of the Association of Capital Market Academics of Nigeria (ACMAN), said he expects the new CBN governor to pursue the mandate of monetary and price stability in the context of inclusive economic growth, which entails deliberately engendering a low interest [rates] environment to promote increased access to capital by firms.

This, he explained, is against the backdrop of the fact that monetary policy tightening has not been effective in taming inflation, given supply-side non-monetary factors driving inflation in Nigeria.

“So, I expect a pause in monetary policy tightening and therefore a hold position at the first meeting to be presided over by the new CBN governor.

“Like the proverbial hen in a new environment, I expect all five new members, the governor and four deputy governors, would first attempt to understand the monetary policy environment before asserting themselves,” he noted.

However, another analyst, Ndubisi Nwokoma, director of the Centre for Economic Policy Analysis and Research (CEPAR), University of Lagos, in a television interview monitored by Business A.M.,  raised concerns pertaining Cardoso’s capacity to handle monetary policy.

Nwokoma argued that though Cardoso has a rich portfolio, especially in the banking and stockbroking sectors, his experience has been more on the fiscal side, with little or no experience in monetary policy.

“I didn’t see much about monetary policy in his profile. Maybe he will learn on the job because the CBN governorship position is a very big job that somebody needs to understand macroeconomics, take a look at the entire system and not just know a particular market. You need a broad view of the whole system,” he said.

Based on this perspective, Nwokoma advised that the deputy governor assigned to Cardoso should be vast in the aspect of monetary policy to create balance, as a wrong monetary policy “will have inflation jumping around.”

Meanwhile, the Lagos Chamber of Commerce and Industry (LCCI), has  advised the Central Bank of Nigeria (CBN) to ‘hit the brakes’ on its consecutive interest rate hikes which was  raised to 18.75 percent, the highest it has been in 22 years, during the last MPC meeting held in July, which was chaired by Folashodun Shonubi, the immediate past acting governor of the apex bank.

Chinyere Almona, director-general, LCCI, in a statement, said the ball is now in the CBN’s court as it weighs the need for continued interest rate hikes against the pressing concerns of businesses and households grappling with the relentless tide of inflation.

“We urge the Central Bank of Nigeria (CBN) to pause interest rate hikes to relieve the pressures on the supply side, especially at this time,” the chamber stated.