Reining in inflation, stimulating output
The MPC has been confronted with a policy dilemma that has to do with the country’s inability to contain consecutive months of inflationary pressures, rising prices, and other challenges associated with the contraction in the economy considered artificial in our view.
In dealing with these situations, we had to adapt some tight monetary policy measures to rein in inflationary pressures. When one adopts a tight monetary policy stance, what it does is that it constrains liquidity, making interest rates high and life difficult for those who want to access credit.
If people cannot access credit, then it means they cannot go into gainful productive activities to help stimulate output growth.
On the one hand, we have this other challenge running in opposite directions. When one wants to stimulate output growth, what one needs to do is to loosen it, stimulate the economy so that output growth can be stimulated, consumption growth can be stimulated.
Where, on the other hand, you have inflationary pressures confronting you, inflation itself has its own damaging effect on purchasing power and the standard of living of the people. What you will find is that you will need to tame it, by adopting some measures that tighten liquidity so as to rein in inflation.
At this meeting, the MPC deliberated extensively on this matter, and we felt that the country hasn’t just crawled out of recession, should monetary policy be tightened in a way that creates disadvantage or disincentive to activities that could stimulate the output growth and therefore reverse us back to recession? Or that we should continue to bolster or stimulate the economy to consolidate on growth? That is what we deliberated on extensively, and MPC members came to the conclusion that given that we just crawled out of recession. there was a need to continue to do those things that more intensely take us out of recession, by looking at supporting interventions, particularly in the agricultural, manufacturing, ICT, and services sectors where we have double-digit growth, the creative industry and in all those other sectors that helped us to exit the recession. We should look at intervening in the health sector, look at the possibility of even doing more to create more loans through our targeted credit facilities for our households and SMEs, particularly those that were adversely impacted by COVID-19.
Knowing fully well that when we support these households and SMEs, what that will result is that it will stimulate consumption spending that will ultimately lead to aggregate demand and then bolster our GDP.
But yes, while doing this, we must also take certain actions that will help to moderate the rate of acceleration of inflation until we are comfortable that we have achieved stability.
So we will continue on those decisions because we know that things are not just right yet. We are on a position where we have an opportunity to reset our economy and push in a positive direction for growth that will really impact positively on the life of our people.
Then we are not going to lose sight on the rate of inflation. Most of our forecasts said we may move up into April. But as from around May, we may begin to see a moderation in inflation. By that time, hopefully, we must have seen the Q1 GDP numbers to hope will consolidate on recovery and then begin to attack inflation very aggressively.
No flexible exchange rate
It might interest us to know that since January the CBN has not intervened in the import and export (I&E) window. The market has always operated within the band close to about N409 to the dollar. In fact, at some point it attained N412, or close to N413 to the dollar. We began to move and that is the way it is supposed to move. Then Central Bank’s job is to watch the market and see how it’s operating and from there determine whether or not to intervene, to moderate the rate in the market in line with our own reading, or where we think the new rate should be.
So, I don’t believe it is not true that we have moved into a flexible exchange rate. Section 4(2)A of CBN Act says the principal object of the CBN shall be (a) ensure monitory and price stability (b) issue legal currency in Nigeria (c) maintain external reserve to safeguard the international value of the legal tender.
That means that the core mandate for the determination of exchange rate rest with the CBN. We have been working with the Ministry of Finance, with the government to see how we moderate and see to it that we achieve a stable exchange rate regime in the country. What I will expect that the minister would have talked about is: at what rate is inflows been monetized? And in line with the extant rules of the IMF, the country is deemed to be practicing what is known to be monitory policy practices as long as it rate varies or ranges around the band that is not more than 2% below the nominal market rate. In our case, the nominal market rate is AFEX.
Intervention on rice
From the information and data available to us, we are working not only with the farmers that harvest paddy rice, which is what we are going to do, we are also working with the millers. We know that during the period of scarcity, particularly during the period when most of the rice and all the food that has been purchased as a result of COVID-19 palliatives, price of rice went up.
Redressing high youth unemployment
Some Nigerians have argued that the CBN policy are targeted against the youth. Let me say that we are doing everything possible to put in place policies that will benefit all Nigerians. CBN is very conscious of the fact that our youth population of between 18 to about 40, 45 constitute close to 60% of our population. We are doing everything possible to ensure that we take them into account in all our policy decisions.
The level of unemployment is regrettable. But I am saying everything is being done to redress that situation. I give an example.
I read how much we have granted in loans under our creative industry financial initiative, which is primarily for the youth. Almost close to about N3.5billion has been disbursed, our AGSMEIS fund is substantially being disbursed to people in this age. Almost close to about N150billion has been disbursed to nothing less than 60% of the people in this bracket.
Only recently the president gave approval for the repositioning, rebuilding and renewal of national art theatre. Aside from renewing and repositioning of the National Art Theatre, four economic hubs are to be built around the National Arts Theatre for movie, music, fashion design and ICT software development. This project will be a total urban renewal for Lagos. After being completed, we will go to another one to be established somewhere in the North and South-East, South-South. Tts going to cost the Bankers Committee, not the government, not the CBN over N40bilion. This is meant to help stimulate the entrepreneurial skills of our youths, improve the tourism capacity of our country so that our youth can enjoy Nigeria. With efforts being made to secure our land, our youth will be able to move around and do their business.