Steering Monetary Policy

Obinna Chima examines efforts by the central bank to address factors that constrain growth in the economy The traditional functions of a central bank include formulating and implementing monetary policy, determining interest rates and directing money supply, achieving price stability, regulating and supervising the banking and financial systems and managing foreign reserves.

However, today, the role of central banks in developing economies is expanding.

In fact, a report by the International Monetary Fund titled: “Challenges for Central Banking,” noted that the breadth and scale of central banking operation has been modified or expanded in unprecedented and even unimaginable ways given the circumstances. Specifically, it pointed out that

unconventional policy measures and communication strategies have been vigorously pursued to prevent financial sector meltdown, and subsequently to support economic activities given a disappointing recovery and stubbornly high unemployment rates in most countries.

That is why beyond its core mandate of monetary policy, the Central Bank of Nigeria (CBN) under its Governor, Mr. Godwin Emefiele, has continued to focus on all key sectors of the economy, in its quest to support the activities of the fiscal authorities and strengthen economic growth.

Specifically, in its continued recognition of its role as an agent of development and aimed at ensuring self-sufficiency to reduce Nigeria’s excessive dependence on imports, the CBN under Emefiele, has in almost five years, invigorated its development finance activities and has maintained a particular focus on supporting farmers, entrepreneurs as well as small and medium scale businesses, through various intervention programs. Some of these initiatives include the Anchor Borrowers Program (ABP), Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) and the National Collateral Registry.

In addition, the CBN recently introduced the Real Sector Support fund; a facility meant to provide cheap funding at no more than nine per cent to new projects in the agriculture and manufacturing sectors; aimed at boosting output and creating jobs.

In the agriculture sector, ABP has ensured that Nigeria emerged from being a net importer of rice to becoming a major producer of rice. In fact, presently, over 900,000 farmers cultivating about 835,239 hectares, across 16 different commodities, had so far benefited from the ABP, which has generated over 2,7 million jobs across the country.

It was in light of the success of the ABP, with regards to cultivation of rice and maize that the Monetary Policy Committee in its meeting last November had recommended that the ABP should be applied to other areas such as palm oil, tomatoes and fisheries to mention a few.

Emefiele, had explained recently that efforts at supporting small scale farmers and SMEs was based on awareness of the critical role they can play in supporting our economic recovery and growth, as well as in creating job opportunities for millions of Nigerians.

“So far, the CBN has through its MSME fund disbursed over N100 billion to the MSME sector, but we still feel a lot can be done. Under the auspices of the Bankers Committee, the sum of over N60 billion has so far been set aside under the AGSMIES fund to fund micro, small and medium scale enterprise businesses in the agriculture and manufacturing sectors of our economy.

“The CBN recognises that the greatest challenge confronting MSME’s and local farmers is access to credit, and that to unlock the growth potentials in our country; these groups must access funding seamlessly.

“In response to this challenge, the CBN will in due course take action that will directly bring banking services to the rural communities through the licencing of a national microfinance bank, which will have a presence in all local governments in Nigeria, thereby supporting the channelling of credit to our rural communities.

“We will continue to explore ways, in partnering with the fiscal authorities, on how we can best provide farmers and SMES with the support they need to expand their operations,” he explained.

Similarly, as part of its long-term strategy for strengthening the Nigerian economy, the Bank established initiatives to resolve the underlying challenges to long-term Gross Domestic Product growth, economic productivity, unemployment and poverty that had pervaded the economy over the past decades. Part of it was the establishment of credit bureau and the National Collateral Registry to improve access to credit in the domestic economy.

Price Stability
The country’s overdependence on crude oil for FX revenue means that shocks in the oil market are transmitted entirely to the economy via the FX markets. That was why after numerous measures, which among others, included the ban of 42 items from accessing forex from the interbank market, the creation of the Investors and Exporters’ (I&E) forex window, inflation rate in the country has continued to simmer down to 11.37 per cent in January 2019, following a period of rising inflationary pressure which peaked at 18.7 percent in January 2017. In addition, the exchange rate has remained largely stable at the various segments of the foreign exchange markets, exchanging majorly around N360 to a dollar.

The cumulative transactions on the Investors and Exporters’ (I&E) foreign exchange window of the Central Bank of Nigeria’s (CBN) have risen to $48 billion since the apex bank created the market 21 months ago, investigation has revealed.

The Director, Corporate Communications at the CBN, Mr. Isaac Okorafor, who confirmed this, added that out of the stated amount of inflows, the apex bank purchased about $9.67 billion.

“The I&E window has attracted about $48 billion inflows since inception. Of this amount, the CBN purchased about $9.67 billion,” the CBN spokesman said.

The surge in the inflows recorded on the I&E, it was learnt, was attributed to offshore investors interest in Nigeria’s fixed income securities.

The naira traded at N362.58 to a dollar on the I&E window yesterday.
The central bank had introduced the Nigerian Autonomous Foreign Exchange Fixing Mechanism (NAFEX), commonly known as the I&E window, in April 2017, including a raft of other measures to improve dollar liquidity, when the country faced a severe forex crisis.

The central bank had explained that the purpose of the window was to boost liquidity in the forex market and ensure timely execution and settlement for eligible transactions.

It had listed eligible transactions under the new window to include invisible Emefiele transactions such as loan repayments, loan interest payments, dividends/income remittances, capital repatriation, management service and consultancy fees.

Also, on the eligible list were software subscription fees, technology transfer agreements, personal home remittances and any such other eligible transactions including ‘miscellaneous payments’ as detailed under Memorandum 15 of the CBN Foreign Exchange Manual.

While explaining that the invisible transactions under this window excludes international airlines ticket sales’ remittances, the CBN added that the window covers Bills of Collection and any other trade-related payment obligations, which are at the instance of the customer.

It is worthy of note that supply of forex to the window is through portfolio investors, exporters, authorised dealers and other parties with forex exchange to naira.

The CBN is a market participant at the window to promote liquidity and professional market conduct.
As at the end of the fourth quarter 2018, aggregate forex inflow through the CBN amounted to $14.51 billion and indicated a 12.3 per cent and 1.3 per cent increase over the levels in the preceding quarter and the corresponding period of 2017, respectively.

In addition, the CBN had tightened money supply in order to contain inflation while improving yields in local bonds, which has continued to attract the attention of foreign investors.

Financial Inclusion
Cognisant of the fact that close to 40 per cent of adult Nigerians do not have access to financial services, the Bank has implemented series of initiatives that would drive our efforts aimed at building a more financially inclusive society.

Some of these measures include the agent banking and the Shared Agent Network Facility (SANEF), both of which are intended to deepen penetration of agent networks in underserved locations across the country.

The recent unveiling of the policy on Payment Service Banks was also an additional step aimed at leveraging on the distribution networks of nonbank entities, such as Fast-Moving Consumer Goods companies, Fintechs, and Mobile Network Operators, in providing financial services to underserved communities.

“With these schemes in place, we believe that over the next two years, over 80 per cent of Nigerians will have access to financial services,” the CBN Governor said.