The Central Bank of Nigeria’s (CBN) policy-making committee (the Monetary Policy Committee — MPC) meets this morning, and into afternoon, Tuesday.
Not long ago, an impending meeting of the MPC would have had echo chambers focused on the economy abuzz. But over the last two years, not a few talking-heads have been persuaded of the folly of commentating on the meetings and their possible outcomes. Largely because, over this period, the CBN has blown a raspberry at monetary policy orthodoxy. I confess that, in this sense, I have shared in much of the ensuing difficulty. A habitué of economic orthodoxy, it became increasingly hard to make sense of the policy trajectory of the monetary authorities. It wasn’t just that I could not agree with the goals that the apex bank appeared to aim at. It was, also, and probably, more so that the CBN’s preferred path, and choice of tools left me in sixes and sevens.
Worse still, was the fact that earlier calls to the effect that the CBN’s policies were leading down a cul-de-sac turned out to be, well, incorrect.
One could argue, to take but the most obvious example, with respect to the apparent correction of the naira’s exchange rate that the CBN was not so much as right on how it handled the foreign exchange markets; but that it was simply lucky. OPEC and its non-OPEC collaborators stitched up global oil supply, (and according to The Economist, were able to “withdraw 350m barrels from global supply”). So, as an economy we continued to earn a windfall from hydrocarbon exports. And all the CBN had to do, was spend the naira out of the corner it was boxed in.
But you had to dig deep to reach this conclusion. On the face of it, the CBN won the argument. It did not help the debate around the appropriateness of current monetary policy that the central bank, by increasingly publishing the comments of members of the MPC much later than was the practice, appeared to favour pulling wool over the eyes of the echo chambers. The CBN was winning the domestic monetary policy argument. Indeed, in certain quarters, locally, you got the sense after very flatulent conversations that the CBN was even re-writing the script — nothing short of a new “home-grown” FX management theory was in the offing.
Not to worry. There was still space in other parts of the economy to apply orthodox thinking. So, I moved on, and away from contemplating the CBN’s actions. Until the publication, last week, by the CBN of the members’ comments on the MPC’s July meeting.
Much of the public reaction to that document was taking up by attempts to parse Adedoyin Salami’s observation that the CBN may have turned “piggy-bank” for the federal government. Our laws don’t like this idea. Therefore, the Central Bank Act 2007 granted the central bank both goal and administrative independence — to ensure that it was not in hock to the fiscal side of government. Accordingly, there is some basis for dwelling on Dr. Salami’s comments.
But what if the CBN is truly in the process of driving a paradigm shift in central banking, would laws designed to govern the old mindset not be an irritating constraint to this enterprise?
Except that Dr. Salami’s comments on the outcome of the last but one meeting of the MPC is a distraction. Far more important in the comments by members from the MPC’s July meeting was Professor Abdul-Ganiyu Garba’s. If, according to Garba, the “joint fiscal and monetary retreat” (not too sure who attends this) held in March this year, “emphasised the organic links between fiscal, monetary and prudential policies and the grave dangers of independent and uncoordinated strategic and policy analysis and choices”, then, maybe (just maybe), the CBN’s current policy trajectory might be the blunder that I have always thought it was.
Indeed, Garba contends that decision-making around monetary policy that occurs “within a strategic vacuum” (the Yoruba’s refer to this process as “eyi je, eyi oo je”) “may not drive the economy towards paths of low inflation conducive to growth, financial system stability (FSS) and fiscal discipline”. Obviously, there is some gratification from finding, within the hallowed chambers of the MPC, resonance for my sense that the success of the central bank’s policy, thus far, has been sheer happenstance — an outcome that remains as vulnerable to another downturn in the global market for crude oil, as such previous policy turns have been since 1959.
“It is important” within this context, according to Professor Garba, “that we keep in mind the frameworks, mandates and goals of macroeconomic management and the specific domains of each monetary, prudential and fiscal policies and the initial conditions of recession”.
Would that someone in authority has bothered to read Professor Abdul-Ganiyu Garba’s comments!