Monday, June 1
Money Market

CBN To Develop New Framework To Stabilise Nigeria’s Financial Sector 

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Image result for CBNThe Central Bank of Nigeria (CBN), says it is developing a framework that will adequately promote stability in Nigeria’s financial system.

Governor of the bank, Mr. Godwin Emefiele, who gave the indication stated that the CBN’s monetary policy has its limitations when dealing with the challenges that confront a nation during recession.

Emefiele said that one of the major lessons learnt from the global financial crises of 2008-2009 was the need to develop an adequate framework and appropriate tools for managing financial stability, particularly macro-prudential and micro-prudential policies and crisis management continuum.

According to him, The Financial Services Regulation Coordinating Committee led by the CBN, is therefore putting together a robust framework that would adequately promote stability of the Nigeria’s financial system.

Emefiele,  in a keynote address at the 2017 Annual General Conference of the Nigerian Bar Association (NBA) in Lagos, enumerated some of the factors that made the Nigerian economy slide into recession.

He pointed out that a casual look at the problems that hit the economy two to three years ago, “even for the untrained eye, will reveal that these are daunting challenges in their individual rights”.
“Yet, the problem that we had to confront was that these developments occurred simultaneously and needed to be dealt with over a short period of time.
“Yet, the real dilemma we faced was that there were significant trade-offs in the outcomes of these economic variables, regardless of what specific monetary policy you implemented.
“For example, one would expect that given the Bank’s core mandate to pursue low inflation, the central bank would implement policies geared towards that.

“In order to tackle high inflation, the correct monetary policy would be to tighten money supply either by increasing the Cash Reserve Requirement (CRR) of banks, mopping up money through increased open market operations, or raising the liquidity ratio of banks.

“Doing any or a combination of these would help to moderate inflationary. Yet, if a central bank in our position were to abandon its pursuit of low inflation and decide to implement an expansionary monetary policy in order to engender rapid economic growth, the outcome for inflation would be much worse.
“This is because an expansionary monetary policy would require reducing the CRR and liquidity ratios and increasing money supply. Obviously, with much more money in circulation, inflation would be worse.
“In view of the dilemma of tackling these problems simultaneously, the optimal solution would be to prioritise and address them sequentially.

“Given our core mandate, and the pervasive effect of high inflation and exchange rate volatility, we chose to tackle these two head-on. It is important to highlight that high inflation is a significant inhibitor of economic growth,” he explained.

According to the CBN governor, high inflation was not only harmful to growth in the long run, but discourages saving and inhibits planning and investment, as people become more sceptical over the direction of prices of goods and services.

As a result, achieving low inflation, he said, remains a major priority for the CBN, saying that if the central bank had chosen to reduce interest rates and increase money supply under the circumstances, it would have further deepened the recession while foreign investment outflows would have worsened foreign exchange reserves accretion.

Emefiele said in order to contain the challenges, the CBN took a number of countervailing policy actions both at the management level and at its MPC, such as to maintain a tight monetary stance in order to contain rising inflation and encourage FX inflows into the country.

“More importantly, however, in order to further extricate the lingering bottlenecks, increase transparency and boost supply in the FX market the CBN, in April 2017, introduced the special Investors’ and Exporters’ (I&E) FX window. The establishment of that special (I&E) window has tremendously facilitated market-driven transactions

“If you carefully look at the size and structure of our import bills, taking cognisance of the fact that imports result in leakages in every economy, it is apparent that we as a people cannot continue to depend on other countries for things that can easily be produced locally.
“How do we justify the importation of items like eggs from South Africa, beef from Zambia and toothpicks from China if we are serious about jumpstarting economic growth in Nigerian and creating sustainable jobs for our people?” he asked.

In order to achieve sustainable economic growth in the country, the CBN governor said there was need to rebuild the ailing infrastructure in rural areas, adding that investing in basic infrastructure including roads, bridges, airports, railways, and information technology was not only good in terms of immediate job creation, but would serve as a catalyst for the movement of goods and services nationwide.

He said there was need to jumpstart agriculture and agribusinesses, citing the achievements of the CBN’s Anchor Borrowers’ Programme, together with other initiatives like the Commercial Agriculture Credit Scheme and NIRSAL.

He urged members of the NBA to partner with the CBN, particularly in ensuring legislative advocacy to ensure quick promulgation of robust legislations in support of the chosen policy options and called for vigorous support for the establishment of commercial courts in Nigeria to facilitate speedy resolution of commercial disputes.

In addition, he said there was need to make provisions for constructive inputs for the development of robust financial sector legislative bills and other regulations, and in order to checkmate the unbridled recourse to the use of interlocutory applications to frustrate legitimate expectations in commercial and financial disputes.

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