… More Needs To Be Done To Achieve Monetary Policy Target- Muda Yusuf

Muhammed, a civil servant at the Ministry of Agriculture almost lost his temper after buying 25 pieces of pepper for N1000 after the sellers refused to sell N500 tomato to him.

Dona who sells auto spareparts in Gudu market, Abuja has been frustrated by exchange rate depreciation. The importer has struggled with his spareparts business since the naira fell to over N1,700 per dollar in February 2024.

These testimonies explain how the ‘Renewed Hope’ monetary policy of the Central Bank of Nigeria has failed to bring down inflation and stabilize the naira despite several policy initiatives.

The Bola Ahmed Tinubu-led administration inherited a central bank that applied an unorthodox monetary policy approach in the discharge of its mandate.

In his ‘Renewed Hope’ Manifesto released months before the 2023 presidential election, Tinubu told supporters that monetary policy must focus on the exchange rate, interest rate and price levels.

For him, the trio must serve the objective of fiscal policy, which is broadly shared prosperity.

Tinubu’s Promise To Stabilise Exchange Rate And Deal With Inflation

In order to undo the mistakes of the past government, Tinubu in his Renewed Hope Agenda highlighted some of the issues leading to the depreciation of the naira including, low crude oil production and the multiple exchange rate windows which gave rise to financial dislocation, currency speculation and arbitrage.

“To ensure that exchange rate policy harmonises with our goals of optimal growth and job creation driven by industrial, agricultural and infrastructural expansion, we will work with the Central Bank and the financial sector to carefully review and better optimise the exchange rate regime. Our economic policies shall be guided by our desire for a stronger, more stable Naira founded upon a vibrant and productive real economy,” part of the manifesto reads.

On tackling inflationary pressure, Tinubu said his team would assess the sources and causes of inflation and deploy the right mix of fiscal and monetary policy tools to contain it; instead of copying the policies and practices of economies from other countries.

The manifesto reads, “To impose the usual anti-inflation medicine of higher interest rates and tighter money-supply will only weaken the patient. The answer to supply-driven inflation is not to suppress normal aggregate demand levels. The better solution is to find ways to increase production and supply. To suppress demand will result in the overall loss of economic activity and jobs.

“Worse, since the inflation is grounded in supply-side issues, placing this weight on the demand side will do little to answer the root causes of current inflation. In short, we punish the national economy and the people without deriving any meaningful benefit.”

Naira Devalues By 221% While Inflation Rises To 33.6% One Year After

Two weeks after the administration took over, the CBN on June 14 introduced the ‘willing buyer, willing seller’ model and harmonized the different foreign exchange markets into the Nigerian Foreign Exchange Market (NAFEM) window.

Before the CBN took the decision, the naira was trading at an average of N460.72 in May. The currency moved to N589 on June 24, N770.88 in July, N783.17 in November 2023.

However, the CBN has achieved success in narrowing the gap between the official and black market rates. In May when the naira traded officially at N460.72, the black market rate was N780 effectively allowing speculators to enjoy an arbitrage of N319 per dollar.

As of May 24, 2024, the black market rate was N1,510 against N1,481.1 traded officially.

Inflation has constantly risen since the government assumed office in May last year. The National Bureau of Statistics (NBS) measured inflation at 24.41 per cent in May 2023 but surged to 33.6 per cent as of April 2024.

The Olayemi Cardoso-led CBN has consistently increased the Monetary Policy Rate (MPR) to combat inflation.

The administration met MPR at 18.5 per cent but the CBN increased it to 22.75 per cent on July 25. At the meeting of the Monetary Policy Committee in February 2024, the bank further raised MPR to 22.75 per cent; adjust the asymmetric corridor to+ I 00/-700 basis points around the MPR and raise the Cash Reserve Ratio from 32.5 per cent to 45.00 per cent.

In March, the MPR was raised to 24.75 per cent and in May, the bank also hiked the rate to 26.25 per cent.

This approach is in contrast with the manifesto that condemns increasing “interest rates and tighter money supply” as a “usual anti-inflation medicine.”

More Needs To Be Done To Achieve Monetary Policy Target- Muda Yusuf

Reacting to the development, the Chief Executive Officer of the Centre for the Promotion of Private Enterprises, Muda Yusuf told THE WHISTLER that more needs to be done regarding the approach to monetary policy.

The CPPE boos said, “With respect to issues around interest rates, Customs Duties exchange rate and issues around the volatility in the foreign exchange market, I think the current administration needs to do a lot more in that area because you cannot have an exchange rate that should be swinging almost on daily basis. You can not also have a Customs Duties rate that is also changing almost on a daily basis.

“That is not good, and we should also define the limits of tightening monetary policy because interest rate is getting to a point that nobody can do business with bank funds. We are talking about 30-35 per cent interest rate.What business are you going to do with that. It is not a perfect situation, but I believe some progress has been made.”

However, the former Lagos Chamber of Commerce and Industry DG said that a lot has been achieved compared to past CBN regime led by Godwin Emefiele.

According to Yusuf, the CBN under the previous administration, had a “terribly dysfunctional” foreign exchange market where there was corruption, round-tripping, and a lot of opaqueness in the way that the market was managed.

Yusuf said, “From all the audit reports, we can see the kind of atrocities that were committed under that regime. Under the current dispensation, at least you have more transparency, you have a minimum round-tripping because the gap between the official and parallel market rate have narrowed significantly and the market is beginning to generate more revenue from government.

“We are seeing better governance and stakeholder engagement by the central bank. We are not seeing the kind of reckless use of ways and means financing that we had under Emefiele, which was a gross violation of the CBN Act.”