Thoughts on Emefiele’s agenda

The new CBN governor, Godwin I. Emefiele, has unveiled his agenda after resuming office during the week. You can read the entire statement here http://www.cenbank.org/Out/2014/CCD/Gov%20%20Emefiele’s%20Vision%20PaperJune%202014.pdf

These are my thoughts on his agenda.

1. It is clear he wants to create as little friction as possible between the CBN and Aso Rock. Promising to create a CBN that is “apolitical” is clearly a shot fired at his predecessor who was anything but. To be clear a central bank that is extricated from domestic politics is a good thing. However being extricated from politics also includes the ability to withstand pressure from Aso Rock. What Aso Rock wants and what the CBN should be doing are sometimes different. Where as it is clear Emefiele wants to stay out of the limelight, it is not so clear that he will be able to withstand pressure from Aso Rock. I guess only time will tell.

2. Speaking of pressure; NOI, Aganga and a few other ministers had spoken about how interest rates are too high and how bringing interest rates down is a key part of their industrialization agenda. The CBN, then led by SLS, had of course raised the MPR to record levels to stabilize exchange rates and lower inflation. Low inflation and exchange rate stability are key long-term targets for the CBN. Lower interest rates, though important, cannot be pursued at the expense of inflation and exchange rate stability. It is therefore odd that Emefiele has come out and set an agenda for lower interest rates even though the fundamentals do not suggest that. Is Emefiele bowing to pressure from Aso Rock already? Or is this really his agenda. To be fair he did say the CBN would in the interim stick with the status quo. And there other means to target the market interest rates especially by targeting risk. Again, time will tell.

3. Including the unemployment in monetary policy decision-making. This is interesting although I’m not exactly sure how feasible or useful it will be. In advanced economies the link between interest rates, inflation and unemployment is clear (depending on which macroeconomist you talk to). However for developing economies, like Nigeria, the link is not so clear. Is unemployment a monetary issue or a structural issue? All signs point to structural. It’s not clear exactly how Emefiele plans to use monetary policy to influence unemployment. Hopefully they don’t follow the classic case of causing higher inflation with no impact on unemployment.

4. Development finance interventions: it seems the CBN under Emefiele plans to ramp up direct intervention in specific sectors of the economy. For example there are interventions planned in Agriculture specifically in the rice, wheat, fish and sugar industries. The usual mantra of conservation of foreign exchange. Our agric minister was definitely at that meeting. There are also interventions planned for the power, oil and gas, and health sectors. Personally I am not a fan of these interventions. Mostly because they tend to only last as long as the CBN governor. The aviation intervention by SLS for example. In the interim the actual financial sector is discouraged from figuring out innovative solutions to finance these sectors long-term.

There are other things in the official agenda but nothing else sounds interesting. Altogether not a bad start by the new CBN governor although not a good one either. Hopefully the markets don’t punish him for his lower interest rates promise. That would make it a bad start.

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