PREMIUM TIMES EDITORIAL
The 294th meeting of the policy committee of the Central Bank of Nigeria (CBN), scheduled for Monday, 20 November, did not hold. Neither did the 293rd edition of the meeting. In September, when the latter edition was due, the CBN was going through an unprecedented change in its leadership. Until the CBN governor’s address to the Chartered Institute of Bankers of Nigeria’s (CIBN) 58th Annual Bankers’ Dinner and Grand Finale of the Institute’s 60th Anniversary last Friday, the apex bank did not, as far as we know, offer any reason for its failure to hold the meeting of its Monetary Policy Committee (MPC) this month.
Understandably, the resulting information vacuum has been filled up with speculation. The word out through alternative channels claim that the delay in constituting the CBN’s governing board is the main cause of the MPC not meeting yet. Whatever the cause, the two months between the failed September meeting and last week’s aborted one was time enough to fix it. Especially given the immensity of the monetary policy problem the country faces.
The CBN governor’s address to the CIBN duly acknowledged the enormity of the difficulties before the bank. But even when he acknowledged his institution’s need to communicate more with the markets and be more transparent about this, he failed to see how the failure to hold the MPC meeting on schedule complicates the CBN’s work. In part, this is because the markets parse meetings of the Central Bank’s policy committee for signals of policy direction, which, in turn, drive both the direction and tempo of domestic economic activity.
On the other hand, central banks have come to appreciate the importance of these meetings as part of the communication channels for their policy of forward guidance – letting the markets in on the banks’ thinking on policy direction. Significantly, under Mr Godwin Emefiele, the Central Bank of Nigeria preferred to take the markets by surprise. Indeed, he is alleged to have taken perverse delight in the thought that the markets could suffer heart attacks on account of his policies. The markets took the nation for a ride instead.
Within this context, hope was that under Mr Yemi Cardoso, the apex bank would communicate differently. It has been anything but that. Up until Friday last week, under Cardoso the CBN’s communication pendulum has swung between surreal silence, and dissembling. That this will complicate the CBN’s work just as much as, if not more than, the preference under his immediate predecessor, is illustrated by the apex bank’s recent decision to repay the forwards owed to domestic banks. In spite of clear evidence that the net external reserves were all but depleted by Mr Emefiele’s market of many windows, the CBN advertised this as a solution to the naira’s loss of value, since prices were freed in the foreign exchange markets.
In the event, the CBN met between 70 per cent to 100 per cent of its repayment obligations to the cohort of foreign banks operating in the country, and about 10 per cent of its obligations to local banks. The infusion of foreign currency liquidity into the markets saw the naira appreciate. But given how inadequate the sums were, as the local banks account for more than 80 per cent of the outstanding forward obligations, the naira’s appreciation may have been simply a case of the infamous dead cat…
