- Promises to address high inflation via evidence-based monetary policy
- Stakeholders list expectations from apex bank
The new Governor of the Central Bank of Nigeria, Olayemi Cardoso, has vowed to restore the CBN’s autonomy and credibility by refocusing on its core mandate and ensuring a culture of compliance.
“Much has been made of past CBN forays into development financing such that the lines between monetary policy and fiscal intervention have become blurred,” he said on Tuesday as Nigerian lawmakers approved his appointment to a five-year term as the next CBN governor
Cardoso is coming at a time when Nigeria’s economy is grappling with a plunging currency and runaway inflation.
“In refocusing CBN to its core mandate, there is a need to pull the CBN back from direct development finance interventions into more limited advisory roles that support economic growth,” he said.
He also said that the CBN would address Nigeria’s high inflation by adopting an evidence-based monetary policy.
“We shall not be making decisions based on a whim,” he pledged
Cardoso, former Citibank Nigeria Ltd. chairman, and four deputy governors were confirmed at a Senate hearing on Tuesday.
They were appointed by President Bola Tinubu in acting capacities on September 22.
The four deputy governors whose appointments were confirmed by the Senate are Emem Usoro, Muhammad Dattijo, Philip Ikeazor and Bala Bello.
The approval paved the way for the CBN to hold a monetary policy committee meeting after the one scheduled for this week was postponed following the resignations of five panel members.
The suspended Governor of the CBN, Godwin Emefiele and his four deputies resigned last month.
Stakeholders noted on Tuesday that the appointment of Cardoso, 66, provides an opportunity for the new leadership to restore the institution’s credibility, which was eroded by Emefiele’s unorthodox policies during his nine-year tenure.
Nigerian inflation is at a more than 18-year high and its currency is among the world’s worst performers this year after the implementation of reforms to liberalize the nation’s foreign-exchange market.
Nigeria’s benchmark interest rate has been increased by 725 basis points since May 2022 to a record high of 18.75% to curb inflation.
Price growth in the country is being fanned by the scrapping of costly fuel subsidies and exchange-rate pressures.
Financial experts noted that when Cardoso takes full control of the apex bank this week, his biggest challenges will be to restore its credibility after nine years of mismanagement, boost confidence in Africa’s worst-performing currency and slow an inflation rate that’s among the highest on the continent.
They said Cardoso is taking over the reins of the CBN when Nigeria’s headline inflation was at 25.80 percent with the associated food inflation at 29.34 percent.
It is also at a time when the exchange rate of the naira to the United States dollar and the Monetary Policy Rate are at N980/$ and 18.75 percent, respectively, resulting in a subdued economic growth of 3.2 percent as of June 2023.
They said public debt continues to gallop, rising from N35.46 trillion as of June 2022 to N87.37 trillion by June this year.
Another national metric, capital importation, declined from a quarterly average of $1.67 billion in 2021 to $1.33 billion in 2022 and further to $1.13 billion in 2023.
Against the backdrop, stakeholders in the country including captains of industry, policy makers, and civil society organisations have listed their expectations for the new helmsman at the CBN and his team, saying confidence in the Nigerian economy must be restored immediately, stressing that the new CBN team has no time for extraneous activities but to hit the ground running.
A Senior Researcher and Policy Analyst at the BudgIT Foundation, Vahyala Kwaga, said one of the crucial tasks before the new CBN governor is to remove the perception of secrecy that is associated with anything the CBN does.
“The CBN will have to move up from being a government institution shrouded in secrecy, to one that is far more open and transparent. Under the former acting CBN Governor, the bank released its annual report for the last 8 years. To put it mildly, this is unacceptable as it depicts to the international community (from whom the country seeks investment) that the bank is run without any appreciation of standard best practices. The image of the CBN as a professionally run institution must be taken seriously,” Kwaga said.
He said the sale of foreign exchange to banks must be done transparently, adding that the approach given to inflation in the last one and half years has shown that raising interest rate has proved not to be an effective means of moderating inflationary pressures in the country, noting that the CBN, being a government bank, should avoid a situation where instead of the commercial banks in the country, it is the CBN that will be lending money to individuals, as witnessed under the previous administration.
“In terms of information sharing, the bank (CBN) should work more in tandem with the fiscal authorities. The previous Minister of Finance had, on a few occasions, complained that she was completely unaware of several consequential actions of the CBN. This is bad for the necessary cohesion that the government should have. The bank must be able to demonstrate leadership, especially regarding borrowings (and repayment) by the Federal Government,” Kwaga said.
The chief executive officer of a prominent microfinance bank in the country, who pleaded anonymity, wants the new management at the CBN to re-commit to the mission of establishing microfinance institutions in the country.
“The mission was simply to expand the frontiers of finance to include persons and small businesses and to address mass poverty with easing access to credit in order to boost income earning capability of ordinary Nigerians.
“Till the recent past, the apex bank had intensely been committed to this mission. I believe actors in the sector expect the new leadership of the CBN to re-commit to this mission. Immediate steps could include re-visiting the Microfinance Development Fund provision of the Nigerian Microfinance Policy. This provision makes for refinancing arrangement, which will lend funds to microfinance banks for the purpose of on-lending to low-income Nigerians and their micro-businesses at affordable interest rates,” he said, adding that there should be consultations with key stakeholders in this sector in order to determine the best approach to optimise the potential of the sector.
Another CEO of one of the leading investment firms in the country, who did not want to be mentioned also, said the CBN under Cardoso should review the sources of Nigeria’s foreign exchange inflows for the purpose of optimisation.
“I expect the new CBN Governor to review our sources of FX inflows and work with all the stakeholders to optimise their operations with no excuses accepted. So, encourage the NNPC for example, to put all that are required in place to ensure it produces at least 2.2m barrels of crude. Put in place a proper think- tank of stakeholders who are ready for a change,” he said.
The President, Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, Dele Oye, wanted the new CBN to address the monetary and regulatory framework challenges of the country as well as ensuring exchange rate stability while the agriculture and manufacturing sectors will get the desired level of support.
He said, “The new CBN Governor should continue to implement sound monetary policies that support economic growth and development. He should work towards maintaining price stability, controlling inflation, and ensuring adequate access to credit for businesses and entrepreneurs. We also expect him to formulate policies that promote financial inclusion, especially for the unbanked population in our country.
“He should focus on maintaining exchange rate stability and ensuring that foreign exchange is available for essential imports. This will help to boost trading activities and promote international trade relations.
“We expect the new CBN Governor to sustain the various interventions and policies put in place by the CBN to promote agriculture and manufacturing sectors of the economy. We believe that these sectors have the potential to drive economic growth, reduce unemployment, and enhance food security in our country. He should review the regulatory framework within the banking sector. He should ensure that the banking system is robust and transparent, with adequate regulatory oversight. Furthermore, the regulatory framework should support innovation and creativity in the financial sector.”
The Analysts Data Services and Resources, a think-tank that focuses on economic research, advisory, data processing and survey, while making suggestions on Nigeria’s economic challenges, said to speed up economic growth and job creation, the country must “ensure effective coordination of macroeconomic policies, promote access to funds for entrepreneurs, especially MSMEs, and establish a sustainable framework to enhance the operation and survival of the private sector.
“To boost access to capital, Nigeria must increase insurance penetration levels and pension coverage to provide a greater pool of long-term funds to finance capital formation as well as make Nigeria a regional financial hub in Africa,” ADSR said.
Since taking office in May, President Bola Tinubu has instituted a raft of new policies — scrapping a $10 billion annual fuel subsidy and liberalizing the foreign-exchange market. The reforms were much-needed, but crippled an economy long on its knees.
The naira is in free-fall — hitting unprecedented lows — and gasoline prices have more than tripled, pushing the inflation rate to a more than 18-year high.
“The economy is a few meters from going bust,” said Mosope Arubayi, an economist at IC Group in Lagos.
“The country risks defaulting on its debts, like its West African neighbour Ghana, if action isn’t taken soon,” she said.
She stressed that Cardoso will need to shore up the bank’s $33.3 billion of foreign-exchange reserves, about 90% of which have been used as collateral for dollar loans from foreign and domestic banks.
“He’ll also need to quickly raise rates, which will pit him against his old friend Tinubu, who called for lower borrowing costs in his inaugural speech,” she added.
“The Central Bank will need to raise rates significantly and at the same time drain the market of naira liquidity,” said Charlie Robertson, head of strategy at FIM Partners.
“Do both of those and show you are serious about stabilizing the currency,” Robertson said, adding “one-year yield of around 20% could make naira more interesting to hold.”
Unlike Emefiele, a flamboyant character who held combative press conferences and tried to run for president while serving as governor, Cardoso is widely seen as a reserved institutionalist.
Nigerian tycoon, Tony Elumelu, said he was confident that the new CBN team is “very capable” and will be able to bring confidence and trust back into the economy.
“We have confidence in the new Central Bank governor based on his credentials and his team and we believe that they will correct things,” he said in an interview with Bloomberg TV.
All investors want, Elumelu added, is an economy “where they can invest freely, as well as move their monies out, when it comes to remittance and repatriation of a dividend.”