Bloomberg featured an article last week that suggests the CBN Governor is losing credibility over his decision to ease monetary policy. Last week the CBN Monetary Policy Committee met and decided to reduce MPR to 11% and also reduce CRR to 20%. Both decisions were aimed at reducing lending cost and encouraging more lending to job creating sectors.
Not to our surprise, much of the Western Media do not agree with that decision. Financial Times, Economist and Bloomberg have all written several articles and opinion editorials often chiding and mocking economic policies of the CBN and even the President.
According to the Bloomberg article in question
Nigeria’s Central Bank Governor Godwin Emefiele is at risk of losing credibility over a decision to ease monetary policy, while maintaining currency restrictions that are hurting the economy.
An analysts interviewed by Bloomberg explained that
“Nigeria faces high inflation, pressure on its currency, and it desperately needs to attract foreign capital to fund the current account deficit created by low oil prices. It is, in short, in exactly the sort of situation in which economists would generally expect – and recommend – tighter monetary policy.”
In keeping with their disdain for the current forex policies they went on (interviewing another analyst)
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“The message that the Central Bank of Nigeria is undoubtedly sending to everyone with its policy easing is that it assumes a fixed-exchange regime remains in place,” she said by phone on Tuesday. “If it were thinking about a foreign-exchange market liberalization, which in all likelihood would lead to more foreign exchange weakness, it would have been more difficult to follow through with these stimulus measures in this format.”
Why the ‘attacks’
Analysts covered by Nairametrics assert that the Western Media for the better part of this year have been at logger heads with the CBN Governor ever since he chose to introduce capital controls on the nations foreign exchange transactions. For them (Western Media), capital controls puts a risk at the ability of foreign businesses to do business in Nigeria profitably as well as repatriate funds often referred to as hot money. They also see devaluation as a move that MUST be carried out if the Government is to once again attract portfolio inflows even though they typically do not represent long-term economic benefits.
Others also allude to economic bias as the western media typically choose western economic policies over home-grown policies that are contrary to their economic objectives. What is however amiss is the fact that most of their policy recommendations over the years have failed to yield positive economic dividends for small business and poor Nigerians who continue to watch as the rich gets richer an analysts explains.
Local Industry experts in the financial and asset management sectors surveyed also shared sympathy with the foreign media especially as it concerned the capital controls currently in place. They claim that whilst devaluation is not the solution, holding on jealousy to external reserves just to avoid devaluation is costing the economy even more and widening the gap between demand and supply. Devaluation is a painful pill but the downsides and implication of not doing it is far worse as can be seen from several economic indicators.
For Godwin Emefiele, the drop in bond yields even after JPM yanked Nigeria off its index should probably strengthen his resolve. Analyst had opined that the JPM measure would increase borrowing rates locally only to see rates drop significantly. His credibility is now even more in question as the recent decision to drop MPR and increase money supply to the economy could make or mar him.