Perspectives on CBN’s Monetary Policy Stance

CBN LogoFollowing the announcement of the policies of the new Governor of the Central Bank of Nigeria (CBN), many policy analysts and other stakeholders have expressed their views, which are fairly divergent. At the requests of some business journalists, we recently offered our opinion on the implications of the new policy trajectory for the Nigerian economy. Excerpts are captured below:

“The current CBN policy is welcome on two fronts: first, the prospect for real sector development and second, the consolidation on gains of regulations made by the immediate past CBN regime.

The prospect of reduced rates on debt instruments will have a positive effect on the real sector as it will encourage banks to lend to the real sector rather than lending to the government. The previous CBN regime maintained a relatively increase of rates, understandably, coming in the wake of the financial crisis at the time and the need to restore confidence to the banking system. There was the trade-off between real sector development and attracting the interest of foreign investors, although compensations for the real sector came through various sector-focused funds like the aviation intervention fund, power fund, agriculture funds etc.

Now that those initial concerns have been attended to, there is a need for a renewed support for real sector development, which is broadly established in the 10-point agenda of the new CBN governor. Having sector-based banking supervision will facilitate channeling of credit to key sectors and the establishment of the Secured Transaction and Collateral Registry will assist banks in reducing lending risks.

On the consolidation of the gains of regulations, the scrapping of charges on cash deposit and the plans for sharing charges realized on the use of cashless-supporting interfaces between the banks and the CBN, the strengthening of credit bureau management, amongst the other 10-point agenda items, would only go a long way to tightening loose holes and further add credence to gains on real sector development.

Overall, the incorporation of unemployment rate as one of the basis for making monetary policy decision marks for a broader support of economic development. Maintaining the stance on risk-based supervision, exchange rate stability, whilst shoring up the Foreign Reserves, are welcome to the market; although the implementation of the same seems a challenging task given other factors in the overall economy.

However, for any economy to grow, the role of financial intermediation by the banks must be emphasized and the new Governor’s policy is a decision in the right direction. It is expected to consolidate on the gains of macro-economic stability whilst encouraging real sector growth through the extension of credit to sectors which act as catalyst of economic development. Sectors like Manufacturing, Power, Transportation, Agriculture, and SME are positioned to gain from a reduction in interest rates.

As laudable as these may be, their implementation would be challenging, when other prevailing economic factors are considered.”

The above is our opinion, on which we would welcome your own perspectives. Kindly share your thoughts in the comments section below. We would love to hear from you!

The opinions above were first published in The Guardian and Punch Newspapers.

Author: Diekola Onaolapo
Diekola is a finance professional with sound industry knowledge and a remarkable depth of experience. Diekola’s career includes experience from financial institutions, such as Citibank, and IBTC (now Stanbic IBTC, a member of the Standard Bank Group) where he managed international trade for public sector and large corporate clients, including telecommunication companies and manufacturing conglomerates. Before co-founding Eczellon Capital, Diekola was an Executive Director at Bluebird Capital and oversaw the advisory services and issuing house business of the company. Prior to Bluebird Capital, he worked with FutureView Financial Services Limited as Head, Advisory Services Unit, where he structured various M&A transactions and capital issues during the 2005 consolidation exercise in the Nigerian banking sector. He has also been involved in a lead role on various PPP and public sector projects including power sector privatization, federal and state road concessions, and the establishment of industrial parks. He is an expert in corporate finance, business and financial advisory.

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