CBN defends use of unconventional economic tools

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    CBN Governor, Godwin Emefiele

    Central Bank of Nigeria (CBN) Governor Godwin Emefiele has hinted that the price of Crude oil can never rise above $100/barrel any time soon.

    He stated: “There was no better time to diversify the Nigerian economy than now because the era of crude oil boom was over and the commodity can never rise above $100 a barrel anymore as as the case few years ago.”

    Going forward, he proposed: “We must just diversify our economy now. We must embrace agriculture and grow the manufacturing sector. It’ll create jobs and generate money into our bank accounts. No more oil”.

    He also defended the apex banks use of unconventional economic tools and methods to solve Nigeria’s economic problems.

    The apex bank thumped it’s chest and declared that it’s use of unconventional economic management tools has worked well for Nigeria.

    Reacting to reports that Central Bank Governors around the world had failed to come up with solutions to global economic challenges, Emefiele, while delivering the first convocation lecture of the Edo University, Iyamho Edo state, said: “Our unconventional methods (especially in the management of the FX market and our development financing) supported by the orthodox approaches (in the form of our timely adjustments of monetary policy rate) have been able to optimally balance the delicate objectives of price stability and real output growth.”

    The CBN he said, “will continue to device ways of ensuring that an optimal mix of monetary policy is continually deployed to engender the overall wellbeing and prosperity of the Nigerian economy.”

    The Bank’s overall aim he said “remains the concurrent attainment of price stability, real growth, full employment, and poverty reduction.”

    Drawing from other jurisdictions experiences, Emefiele noted that “the 2008 – 2009 Global Financial Crisis, which resulted in negative growth rates in a number of advanced economies in the Euro Area and the United States, unconventional monetary policy measures played a vital role in enabling the recovery of these economies from the global recession.”

    He argued that though “still useful, conventional tools were unable to address constraints to growth such as debt overhang and stagnating growth.”

    According to the CBN Governor, “the use of unconventional tools such as quantitative easing and forward guidance, led to growth recovery in the US, as well as a reduction in its unemployment rate.”

    In the case of Nigeria, Emefiele stated that “the CBN’s experience with unconventional monetary policies came to prominence during the recent economic crisis that begun in 2014 due to a number of global shocks, four of which were simultaneous and significant in shaping the trajectory of the Nigerian economy.”

    The most important of these factors to impact the Nigerian economy he said was the plunge in crude oil prices.

    He lamented that Nigeria’s overdependence on crude oil for over 60 percent of fiscal revenue and over 90 percent of FX inflows, meant that shocks in the oil market were transmitted entirely to the economy via the FX markets as manufacturers and traders who required FX for input purchases were faced with dwindling supplies.”

    To take Nigeria out of recession, Emefiele said the monetary and fiscal authorities engaged a mix of monetary and fiscal policies comprising of the CBN embarking on a cycle of tightening of monetary policy; conserving the nation’s foreign reserve by introducing “a demand management approach in order to conserve our reserves and support domestic production of certain goods in Nigeria”; introduction of the Investors and Exporters (I&E) window, which allowed investors and exporters to purchase and sell foreign exchange at the prevailing market rate;” and the CBN increasing its lending to the agricultural and industrial sectors, through targeted intervention schemes such as the Anchor Borrowers Program, Commercial Agricultural Credit Scheme and the Real Sector Support Facility.

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