Financial markets await Emefiele’s 2019 policy thrust

By Moses Obajemu

• As first term ends in 6 months

Exactly six months to the end of the first term of Godwin Emefiele, governor of the Central Bank of Nigeria (CBN), the attention of the financial market will, next week, shift to Abuja, the country’s political capital, to hear him unveil the main policy thrust and direction of the CBN in relation to its core mandate of monetary policy and macroeconomic stability for 2019.

Emefiele was appointed by former President Goodluck Jonathan to a five-year first term and is in line by entitled consideration for reappointed to another five year second term by President Muhammadu Buhari, who inherited and retained him following his victory in the 2015 general elections that brought him to power.

But he is expected to seize the occasion of the first meeting in 2019 of the Monetary Policy Committee (MPC) holding on January 21 and 22 to unfold a broad based policy framework to guide and steady the markets in an election year when the CBN has firmly placed its hands on monetary and financial system stability.

While some observers believe it is still too close to call on a possible reappointment to a second term for Emefiele, multiple analysts told business a.m. last week that they were anxious to hear the first major pronouncement this year from the governor especially to know the policy cocktails he has formulated in this crucial year.

During 2018, the apex bank relentlessly pursued inflation targeting measures through liquidity management, interest rate management as well as easing pressure on the naira through reserves building and accretion strategies which significantly arrested the naira slide in the forex market.

Many analysts believe that the CBN governor and, indeed the MPC may not increase the monetary policy rate from the current 14 percent, which was jerked to that level in 2016 because of the assumption that the economy is not facing inflation crisis or any distortions.

Analysts at Cowry Capital suggested that the MPC will retain rate, given the rise of inflation and the need to maintain a positive real interest rate to maintain monetary stability in the economy.

The committee has kept all policy rates the same, retaining MPR at 14 percent; CRR at 22.5 percent; liquidity ratio at 30 percent; and the asymmetric window around the MPR at +200/-500 basis points.

The CBN had shown resilience in the course of 2018, wading off calls for rate cut, with the CBN prioritising forex stability and keeping tabs on liquidity over a more robust economy.

The Nigerian apex bank on many occasions used the sustained global uncertainties and fear of a stronger United States’ dollar as excuses to maintain status quo.

Amidst concerns for huge campaign spending by political parties in the build up to the general elections and the anticipated implementation of a new minimum wage across the country, the CBN still did not effect a rate hike, saying the economic conditions in the country did not call for panic actions.

The apex bank’s weekly intervention and special interventions in the forex market have also helped in ensuring exchange rate stability. Analysts believe the CBN will not change its policy of interventions aimed at defending the naira.

At the unveiling of his vision and agenda for the CBN after his appointment in 2014, Emefiele had said the apex bank under his watch would focus on macroeconomic stability and engendering economic development in the country, both agendas he has pursued religiously in the last four and a half years.

He said he would work towards acreduced interest rate regime, foreign exchange stability, price stability as well as supporting critical sectors of the economy to bring about economic development in the country.

In making a case for this initiative, he said: “For quite some time, the dominant school of thought regarding central banking was that focusing on low inflation will eventually lead to greater growth, increase in employment generating activities, and poverty reduction. However, early and recent evidence of central banking in places such as the United States, England, Japan, and France indicates that supporting selected economic sectors using “direct methods” of intervention have been essential tasks of their central banks.

“Virtually all central banks, including the Bank of England (BOE) and the U.S. Federal Reserves (the Fed) have used direct means to support economic sectors. And this has not simply been a matter of historical aberration, but rather, it has been an essential aspect of their structures and behaviour for decades on end,” he said.

Towards this end and in view of the high unemployment levels in the country, he said his administrations would identify the productive sectors of the economy and channel credit towards these sectors, while imposing proper monitoring and performance measures in order to ensure that the goals of increased employment and poverty reduction are attained.

On his agenda for development finance, Emefiele said the core principle underlying the support is that the CBN will act as a financial catalyst by targeting predetermined sectors that can create jobs on a mass scale and significantly reduce our import bills.

“The CBN would deploy developmental initiatives to create an enabling environment with appropriate incentives to empower innovative entrepreneurs to drive growth and development. It is important to stress here that the CBN would not be targeting individual companies but rather specific sectors. We would establish rules and criteria that create a level playing field so that anyone who fairly qualifies can benefit from these schemes,” he said.

Industry watchers are eager to find out if the CBN governor will continue with his agenda or change course as his tenure draws to an end.

There are analysts who believe that the CBN had been biting more than it should and that its actions had become the saving grace of the fiscal authorities, who chose to abdicate their responsibilities under the cover of the apex bank.

In a politically charged setting such as Nigeria, lobbyists are likely to go to work in the next few months propositioning candidates as replacement, but the ultimate buck will stop at the table of the president, and a cabal, some would want to add.