A discrete CBN Governor By Ifeanyi Uddin

Ifeanyi Uddin

When last week one (Nigerian) newspaper closed its business section Friday with the headline, “Sanusi: MPC Will Not Raise Interest Rate”, my first reaction was that SLS had gone done it again! Despite his remarkable erudition and sharp intellect the main downside to the current governor of the Central Bank of Nigeria is his inability (I long concluded that it isn’t just an unwillingness) to maintain an antiseptic aloofness from the fray around him. Upon further reflection, though, and in the face of the myriad problems besetting this country, it might well be nigh impossible (irresponsible, even) for anyone with a capacity for rational thought to keep quiet. After all, all that the best education does is to create moral space for the possibility of diverse interventions in the hope that we may yet pull this country back from its pell-mell rush over the precipice.

So, there’s a case in Nigeria for good men to agree with Edmund Burke, accept that we have reached that place where forbearance is no longer a virtue, and bestir themselves in the national cause. However, as events in the wake of the protests surrounding the fuel “subsidy” removal teach us, it is not enough for the best amongst us to divest themselves of their lack of conviction, and proceed to rival the worst of our compatriots in the intensity of their passions. For even as Yeats concedes, if our ceremony of innocence is not to be submerged in a blood-grimed tide, it is necessary that the falcon and the falconer be in working


In our case, the correspondence prescribed by our macro-economic arrangement is one that grants both legal and functional autonomy to the central bank, in so far, at least as the fiscal side of the equation is concerned. On this argument alone, it was inappropriate that the chief manager of domestic monetary policy should plight his troth that completely to the fiscal side of the argument on the propriety of removing the fuel “subsidy”.


Apropos of the newspaper headline, one could then ask, “Why the umbrage, if the CBN governor is being quoted in this instance on matters concerning monetary policy”? At this point, a deep pause makes much sense. For I’d once been caught out in less than salutary comments on the management of the domestic monetary space, which turned out to have been near baseless. And truth be told, what the CBN Governor actually said was that “”In January, because of the removal of subsidy there’s going to be inflationary pressure. Usually we will not respond to that directly because it’s a first round effect. So we will not raise interest rates in response to inflationary pressure from the rising oil prices.”


Very different, this, from the banner headlines, but no less worrisome. There is a consensus around the fact that by articulating and clearly communicating policy direction, central banks are better able to anchor domestic inflation and the expectations that drive this. But here, as just about everywhere else, the message is no less important than the channel. To be fair, Governor Sanusi Lamido Sanusi (SLS) more than any other governor of the central bank has done more to strengthen the apex bank’s rate-setting function. A diverse and professional team as members of the CBN’s Monetary Policy Committee (MPC). Scheduled meetings of the committee. Immediate announcement of the committee’s decision through a communiqué that has gradually become an industry landmark. And inclusion of each members voting along with brief statements on the rationale for each vote.


All of these have improved the CBN’s signal-to-noise ratio in respect of its communication of its interest rate decisions. This has in turn led to the higher predictability of inflation decisions, and expectedly, the extent to which inflation expectations have been managed in the last couple of years. however, by regularly pronouncing on the direction of rates ahead of meetings of the MPC, the governor not only worsens the signal-to-noise ratio around the communication process, but makes the committee’s assignment that much harder.


Imagine for instance that non-CBN members of the committee were minded to vote against the governor’s publicly expressed position. It would be hard in such circumstance for the deputy governor members to go along. The vote would then be split along “functional” lines, and not in the interest of the economy. Time has thus come for our governor to be seen less and heard even more sotto voce.


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