CBN to carry on as before in 2019

In an address given at a dinner in Lagos on 30 November, the CBN governor, Godwin Emefiele, gave some pointers for its policies in 2019. We should not expect any substantial change in direction. Above all, its monetary stance is set to remain tight because of rising inflation expectations, which the CBN has not quantified, and possible exchange-rate pressures. It has to be alert to a further sharp decline in the oil price, which is not our central forecast. We see the policy rate at 14.00% throughout 2019.

  • The CBN is most unlikely to trim its role in development finance. Indeed, an expansion is on the cards. The governor said that the anchor borrowers’ programme had benefited 860,000 farmers as at October 2018, and generated 2.50 million jobs.
  • The CBN’s position is that it should intervene in the economy where the commercial banks are reluctant to tread. The Bank of Agriculture, the Bank of Industry and the new Development Bank of Nigeria have a similar remit.
  • Emefiele made a robust defense of the administrative controls of June 2015 that bar the import of 41 items with fx sourced either officially or from the bureaux de change. He gave rice, the first item on the list, as an example of its success in pushing economic diversification. Official imports of food items have fallen sharply in the past four years. We should not think that a reversal is coming, judging from his announcement that the CBN will work closely with the Economic and Financial Crimes Commission on implementation.
  • Financial inclusion also featured in his speech. The 2018 report of Enhancing Financial Innovation and Access, an independent body, has this week put inclusion among Nigerian adults at 63.3%. The ratio stood at 53.0% in 2008.
  • His speech encouraged foreign direct investors to seize the many business opportunities. This is really the responsibility of the FGN since the CBN cannot be expected to transform the ease of doing business and power supplies.
  • Referring to the fixed-income market, he said that Nigeria has performed well in relation to other EMs such as Argentina, Brazil, South Africa and Turkey. The success of NAFEX and the high naira yields were the explanations he cited. We would add the far greater liquidity of the four markets in question, and the fact that three of them come with substantial political risk attached.
  • Central bank governors come and go. There are limits to their influence across the institution: for example, the senior ranks of the CBN favoured management of the exchange rate long before Emefiele became governor. However, we should note in passing that his first five-year term started in June 2014.

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