Thoughts on CBN’s 5-Year Monetary Policy Blueprint (Re: Monetary Trespass)


Wednesday, June 26, 2019    /   06:57AM   /   By  Bismarck Rewane   / Header Image Credit: SafetyShop


Paul Krugman, the Nobel economist and Professor at Princeton, commented on Trump’s attempt to undermine the independence of the Federal Reserve Bank. He says the common principle of the new monetary policy is simple: monetary policy should be whatever serves Donald Trump’s interests.


In South Africa, the Rand tumbled 2.3% after Parliament talked about expanding the mandate of the SARB to include unemployment and growth.


It is in this context of the neo-orthodox monetarists in Nigeria that we seek to analyze the meaning of the audacious 5-year monetary policy blueprint of the Central Bank of Nigeria (2019 - 2024).


In the following slides, Bismarck Rewane of FDC Limited tries to decipher therationale behind the thoughts whilst highlighting some of the likely unintended consequences on the long run macroeconomic stability of Nigeria.



1.      Neo-orthodox Economics of Monetary Policy

  • Economic policy Σ(Monetary policy + Fiscal policy)
  • Monetary conditions are different from Monetary policy
  • Monetary policy runs counter to monetary conditions
  • Tight monetary conditions call for loose monetary policy
  • Monetary conditions -the patient
  • Monetary policy -the therapy
  • Recent attempts of monetary policy trespass in U.S & S.A led to market backlash and pushback



2.     Macroeconomic Scorecard - Setting the Records Straight


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Proshare Nigeria Pvt. Ltd.2014- 2016: Rough time for CBN

Proshare Nigeria Pvt. Ltd.2016 till date: CBN scores high


Source: EIU, CBN, *forecast



3.     Citizens Scorecard - Suffering but Smiling


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Source: FDC Think Tank



4.     Promises Made in the Blueprint

    Bold statements but no specifics:

  • Macroeconomic & financial stability - single digit inflation rate & double digit growth rate.
  • Boost financial inclusion - through investment in payment system infrastructure (95% of Nigerians to have access to finance by 2024)
  • Mortgage facilities - reduce high cost of obtaining mortgage loans
  • Boost external reserves - currently at $ 45.09bn
  • Recapitalisation of banks - NPLs down to 9% in 2019



5.     Differentiating Between Fiscal and Monetary Objectives

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Source: FDC Think Tank



6.     Monetary Policy Rules

  • Discretionary rule: CBN acts as it sees fit
  • Fixed rule: do nothing irrespective of events; too simple to respond to complex events
  • Feedback rule: policy responding to specific events; dependent on how quickly the adopted policies can take effect

o   Nigeria adopts feedback rule but is at times late to respond

o   E.g Forex crisis in 2016

o   CBN likely to shift to discretionary rulepolicy)



7.     What Next?

  • New capital guidelines to keep ahead of

o   Ghana: $81.9mn

o   Nigeria: $69.4mn

  • Monetary policy is positive and likely to remain positive in the near term

o   Policy continuity

o   Interaction with international financial community

  • Structural changes necessary fiscal mandate for fiscal team ONLY
  • Forex market structure to remain a managed float regime
  • Improved access to finance for farmers and the creative industry 


8.    Unintended Consequences

  • Tight monetary policy will choke growth
  • Intervention emergency funding is becoming a permanent feature
  • Unemployment data for Q4’18 will show sharply higher figure (estimated at 28%)
  • Nigerian banks to become larger and dominate West & Central Africa 



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