Is CBN to blame for rising inflation in the economy?

By Ata Udo

The biggest challenge the Central Bank of Nigeria (CBN) is facing today hardly appears to be failure to deliver on its core constitutional mandates. Rather, it is having to do battle with seen and often unseen forces to fend off the collateral damage it is being made to suffer in the hands of undiscerning public whose best past time of late has been to blame it for the sins of others, just because it has chosen to go out of its way to deploy its resources and capacity to help the system solve the problems that we all bedevil the economy, which are outside the purview of its core mandate.

Under the CBN Act of 2007, the CBN’s core mandates cover, among other functions, “the overall control and administration of the monetary and financial sector policies of the Federal Government, to ensure, among other things, monetary and price stability; maintain external reserves; promote a sound financial system, and act as Banker and economic and financial adviser to the Federal Government.”

Has the CBN delivered on these mandates? Although the answer, in all modesty, may not be 100% yes, it may not be too far from a decent credit for the various interventions it has made to cushion the negative impact of various conditions on the people.
For instance, the CBN has discharged its core function of money supply through various monetary policy interventions to sustain the growth of the real sector and stability of the country’s overall economy.
At the end of the Monetary Policy Committee meeting last Tuesday in Abuja, the CBN governor, God Emefiele, reported that money supply into the economy rose significantly to 11.52 percent in June 2022, compared with 10.86 percent in May 2022, a with the Capital Adequacy Ratio (CAR) and the Liquidity Ratio (LR) both remaining above their prudential limits at 14.1 and 42.6 percent, respectively in June 2022. Similarly, the CBN governor said Non-Performing Loans (NPLs) ratio reduced to 4.95 percent in June 2022, compared with 5.7 percent in June 2021. All these are positive indices of the impact of the interventions of the CBN through its tight prudential regime, which saw the official lending rate for commercial banks, reflecting the or monetary policy rate (MPR) raised from 13.0 to 14.0 percent, with the asymmetric corridor retained at +100/-700 basis points around the MPR, same as the cash reserve ratio (CRR) at 27.5 percent and the Liquidity Ratio at 30 percent.
Again, is there room for the CBN to do more? The answer is an emphatic yes, because there is always opportunity to do better.

However, despite all these efforts, critics, of late, have surprisingly continued to accuse the apex bank of not doing enough to curb spiraling inflation in the economy.

Last week, the National Bureau of Statistics (NBS) said in its latest consumer price index (CPI) report that headline inflation rate in the economy (year-on-year) rose to about 18.60 percent in June 2022, from 17.71 per cent in May 2022, an increase of 89-basis points.

The latest figures appear to follow a spiralling trend in the global space as a result of the various unforeseen socio-economic conditions that seem to defy the various interventions to moderate inflation, including the negative impact of COVID-19 pandemic and the disruption of normal flow of services and supplies to the people around the world as a result of the ongoing conflict between Russia and Ukraine. The war has seriously disrupted the economic momentum in the European economy following the drastic sanctions imposed on Russia which seems to have triggered energy crisis that is reverberating around the world and piling pressures on the developing economies.
As observed by the CBN governor, Godwin Emefiele, at the end of the latest MPC meeting on Tuesday, inflation in several advanced economies (not only in Nigeria) pushed higher and further away from the long-run objectives of their central banks (including CBN), reflecting the sustained increase in the price of food, energy, and other commodities due to the harsh combination of persisting supply chain disruptions and pent-up demand. The CBN governor said the MPC was concerned that the persisting uptick of inflation in Nigeria was not because the monetary policy authorities have not done enough, as insinuated by critics, but that it was as a result of external global pressures on the country’s economy.
He said these pressures have continued to raise the level of inflation in both the core and food components of the economy to 15.75 and 20.60 percent in June 2022, primarily as a result of non-payment of the rising cost of production due to high energy prices associated with the persistent disruptions to power supply, hike in electricity tariff, continued scarcity of Premium Motor Spirit (PMS), and rising price of Automotive Gas Oil (AGO), apart from the shocks to food prices associated with continued insecurity in food producing areas and along major access routes across the country.
In the face of all these abnormal conditions that fuel inflation, the question to ask might be whether the CBN can do more to improve the situation, rather than whether it has done enough to beat down inflation in the economy.

Although in exercising its mandates, the inflationary trend in the economy, directly or indirectly, is affected, there is nowhere the law says the CBN should be held responsible for it.
If every government ministry, department and agency were to have emulated the CBN and go beyond their constitutionally assigned mandates, to do engage in activities that add value to the economy as the CBN, then the situation would definitely be different.

A cursory review of the activities of the CBN in the last five years reveals that its interventions in the core sectors of the economy cover beyond its core mandates to areas relating to the traditional functions of the fiscal authorities of government.

Beyond this policy, the impact of the CBN’s interventions in the agriculture and manufacturing sectors through such schemes as the Anchor Borrowers’ Programme, Commercial Agricultural Credit Scheme and the Real Sector Support Facility attempt to redress those conditions that fuel inflation.

In terms of efforts to tame the rising food inflation in the country, the CBN’s intervention through the Anchor Borrowers scheme alone has ensured that the bulk of the rice being consumed in the country in recent years are produced in-country. Through the programme, the huge foreign exchange that used to be spent on the importation of rice into the country is now conserved and utilised in the development of local rice production capacity.

In the power sector, the CBN’s direct and indirect intervention schemes through the Nigeria Bulk Electricity Trading Plc (NBET) have supported efforts to ensure stable electricity supply, which supports the continued production of goods and services directly affecting inflation in the country.

These are not activities that are part of CBN’s core mandates, but interventions undertaken as part of the apex bank’s commitment to demonstrate good corporate citizenship, to make the economy work, and save the people the unnecessary pressures. These interventions by the CBN should be seen as such and not blame the apex bank for what is clearly not its responsibility in the first place.
What the CBN needs now is encouragement to continue to do more of what it is doing to sustain productivity in the economy to guarantee growth and beat down inflation.

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