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Nigeria's CBN Targets 6% Inflation, Defends Monetary Policy Framework

January 15, 2013 This Day Live
The Central Bank of Nigeria (CBN) Monday said that it was working towards achieving a six per cent inflation rate in the country, even as it defended its monetary policy framework.

CBN Director, Financial Markets Department, Mr. Emmanuel Ukeje, said this at a roundtable titled: “Nigeria’s Fiscal and Monetary Crises: The Way Out,” organised by the Save Nigeria Group, in Lagos.

Ukeje insisted that the poor state of infrastructure in the country was working against the effective transmission of monetary policy.

This came, just as an economist, Mr. Henry Boyo, who was one of the panelists at the forum, argued that the underdevelopment suffered by the country was as a result of poor monetary policy framework by successive leadership at the CBN.

Ukeje, however, explained: “The central is not just working on the issue of single-digit inflation rate. We just held a board meeting and the governor of the CBN, on his own, said going forward, we should be able to push inflation down to about six per cent. But we all have responsibility.

“The central bank is only a monetary authority; central bank is not a fiscal authority. When you talk of price stability, the responsibility of the CBN is to ensure that the volume of money we have in the system does not create unnecessary inflation.

“That is why when people say the central bank is mopping up liquidity from the system, the question you ask is that the money we have in the system do we have adequate goods and services to take care if it? And if they are not, the resultant effect is going to be inflation.”

According to Boyo, high interest rates regime, continuous depreciation of the naira, low capacity utilisation, low rate of employment, direct sale of dollar to Bureaux De Change (BDCs), inadequate power supply, increasing fuel subsidy, periodic mop up of excess liquidity from the system and the continuous sharing of federation allocation among the three tiers of government in naira, as factors that have continued to hamper the country’s growth.

Boyo added: “We pride ourselves on giving agric loans at seven per cent, in some serious minded countries, agric sometimes attract zero per cent rates. The naira depreciates as a result of connivance of the central bank. The central bank sells dollars directly to BDCs. I have never seen any country in the world where the central bank sells its official dollar revenue to BDCs.”

Boyo advocated for cost of funds between eight and nine per cent as well as inflation rate of about three per cent for the country.
On his part, Director, Research, CBN, Mr. Charles Mordi, faulted Boyo’s call for sharing of federation account allocation in dollars, insisting that would not be possible as the naira remained the country’s legal tender.

“There is a trade-off between inflation and growth. You do not move from a high inflation regime to a low inflation regime. It has to be a gradual process. Also, interest rates is not something you bring down overnight,” Mordi explained.

Furthermore, he pointed out that the apex bank intervened in the forex market in order to ensure stability of the naira, saying that persistent depreciation of the naira discouraged investors.
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