Implementing Monetary Policy in an Economy in a Recession

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president-muhammadu-buhari-of-nigeria-with-godwin-emefiele-of-central-bank-of-nigeria-cbnThe Nigerian economy slipped into a recession in the second quarter of 2016. This followed the report of the National Bureau of Statistics (NBS) which showed another unhealthy growth in Nigeria’s Gross Domestic Product (GDP) during the second quarter of the year. According to the report, the Nigerian economy has recorded two consecutive quarters of negative GDP growth rates in the first half of the year; and there are indications that this outcome may linger awhile if appropriate policy measures are not implemented. Real GDP contracted by 2.06 per cent in the second quarter of 2016 worse than a decline of 0.36 per cent in the previous quarter.

In the review period, the non-oil sector shrank 0.38 percent compared with a contraction of 0.18 per cent in the preceding quarter. Similarly the oil sector slide by 17.48 per cent in the second quarter of 2016 after dropping of 1.89 per cent in the preceding quarter. Other sectors, notably construction, manufacturing and services performed poorly as they recorded negative growths of 6.28, 3.36 and 1.86 per cent, respectively. Only agriculture, solid minerals and other services such as information and communication technology (ICT), recorded positive growth rates of 4.53, 2.64 and 1.35 per cent, respectively.

Other macroeconomic indicators have not fared better. Unemployment and underemployment rates increased to 13.3 and 19.3 per cent in Q2, from 12.1 and 19.1 per cent in Q1, respectively. This was due to a 1.78 per cent increase in the labour force population to 79.9 million in Q2, 2016. It was 78.5 million from Q1, 2016. Of particular note was the worsening of youth unemployment as 58.3 per cent of the labour force aged 15 – 24, were either unemployed or underemployed in Q2, 2016 compared with 56.1 per cent in the preceding quarter.

Although manufacturing was prioritized by government, capacity utilization which was estimated at 50.7 per cent also indicated a decline of 2.0 percentage point when compared with the preceding quarter of 2016. The decline in manufacturing activities was attributed mainly to power supply shortages, exchange rate challenges and the general cash flow squeeze which have impacted negatively on business confidence activity.

At 3,156mw, the estimated average electricity generated in the second quarter of 2016 fell by 0.19 per cent, compared with the level attained in the preceding quarter. This was due to pipeline vandalism, transmission losses, as well as the fall in water supply to the hydro stations. Estimated average electricity consumption also fell to 2,989mw/h, 0.19 per cent below the level in the first quarter. The fall in electricity consumption was attributed to the decline in generation and transmission losses.

Agriculture had a better fortune. It has continued to grow even when other sectors were contracting. It grew by 4.53 per cent up from 3.09 per cent in the first quarter. Agricultural activities received a boost nationwide with the onset of the rainy season, especially in the northern part of the country. In the southern states, early harvest of maize and yam kept farmers busy. In the northern states, potatoes, maize and groundnut were harvested. In the livestock sub-sector, farmers engaged in the continued migration of cattle from the north to the neighboring southern states for grazing.

While the weak economic performance was the result of under investment in the critical sector of the economy, the current recession is traceable to a number of factors including fall in oil prices that commenced in June 2014, capital flow reversals, inadequate saving of oil proceeds and decline in industrial activities owing to failure to invest in infrastructure.

Dwindling fortunes of oil

The oil market crash was particularly destabilizing as crude oil prices fell from $115 in July 2014 to a low of $27 in February 2016, before rebounding to a range of $42-$50 in recent months.  With the slide in oil prices, government revenues plunged, adversely affecting the government expenditures, especially, in the critical sectors of the economy. This created huge budget deficits and raised public sector borrowing requirements and debts. The attendant low accretion to reserves put pressure on the exchange rate making it more difficult for the monetary authority to defend the value of the naira, the local currency.

Inadequate saving of the proceeds of oil when prices were high was a costly error. Nigeria was not only depleting its excess crude funds, but also ramping up domestic debt to finance consumption-led growth. Servicing these debts now consume close to a third of government revenues. Worse, all these combined with other high non-debt recurrent expenditure, means that very little is left  for infrastructure and other capital spending needed to power long-term economic growth. Inadequate critical infrastructure, especially power, has become a drag on economic growth. Accumulated public debts face re-financing risks at the prevailing high market interest rates. Policy uncertainty throughout the election between year (2015), and the first half 2016 as well as the late passage and implementation of the 2016 budget, completed the damage to the economy.

In terms of the prices, headline inflation (year-on-year) continued its upward trend, rising to 17.6 per cent in August, from 17.1 per cent in July 2016. Consumer prices had maintained this upward trajectory since the beginning of the year. The increase in consumer price inflation in August stemmed from increases in both the food and core components of inflation. Core and food inflation increased from 16.93 and 15.80 per cent in July to 17.2 and 16.43 per cent, respectively, in August 2016, way out of the Central Bank of Nigeria’s policy reference band for inflation of 6-9 per cent.

This clearly stagflationary situation, calls for the implementation of carefully crafted and well-coordinated mix of fiscal, monetary, trade, and external sector policies.

Re-thinking forex administration

In line with the mandate of the Central Bank of Nigeria (CBN) to foster depth, stability and liquidity in the Nigerian foreign exchange market, the Bank has the responsibility to develop a framework that will enhance the growth, transparency, efficiency and effectiveness of the foreign exchange market. It is in the light of this goal that they Bank came up with an institutional framework that operationalizes the flexible exchange rate regime.

Nigeria is confronted with the effects of three simultaneous global shocks which began in mid-2016 with more than 60 per cent fall in the price of crude oil which is the major source of the country’s foreign exchange and fiscal revenue; huge capital reversals following US monetary policy normalization; and general slowdown in global growth which has caused investors to remain dovish. The situation has also been compounded by geopolitical tensions and conflicts in places like Iraq and Syria with the attendant refugees and migrants’ crisis. In some advanced economies, the post-global financial crisis (GFC) legacy issues have continued to weigh on recovery efforts.

The resultant effects on the Nigerian economy is the significant decline in the country’s foreign exchange reserves, which came down from $42.8 billion in January, 2014 to about $24.5 as at  September15, 2016. In the face the dwindling accretion to reserves, the nation’s import bill continued to rise from N148.3 billion per month in 2005 to N917.6 billion per month in 2015.

To reduce the pressure and conserve forex reserves, the Bank adopted policy measures, guided by the need to stabilize the exchange rate of the naira and to prioritize the most critical needs for foreign exchange. In doing this, two adjustments in the naira exchange rate, by way of devaluation from N155/$ to N168/$ and later to N197/$, were made between 2014 and May 2016. Among the most critical needs that were prioritized in the provision of limited forex in the intervening period were, matured letters of credit from commercial banks, importation of raw materials, plants and equipment, importation of petroleum products and payments of basic and personal travelling allowances, school fees and other related expenses. To a large extent, the measures led to reduction in speculation and rent-seeking activities with the Bank ensuring that though the reserves level came down, and it maintained a robust level that will continue to cover not less than five months of import cover.

Less rigidity, more flexibility

For policies to continue to reflect the facts of development, the Bank deemed it appropriate and timely to restore the automatic adjustment or flexible mechanism of the exchange rate.

The flexible foreign exchange market was operationalized on June 27, 2016 to replace the rDAS-managed exchange rate regime. The new framework has the following features:

It is operated as a single market structure that is a unified interbank system – interbank and the autonomous segment.

The exchange rate is purely market driven using the Thompson-Reuters order Matching System as well as conversational dealing Book. In other words, trading takes place on a two-way quote via the FMDQ Thompson-Reuters FX Trading System and Reporting System Order Book.

It has foreign exchange primary dealers (FXPDs) registered by the Bank with guidelines that define the requirements for registration. There are other authorized dealers classified as non-FXDPs.

The CBN is a participant in the market through direct intervention at the interbank and other interventions through secondary mechanisms.

The spread between the bid and offer rates in the interbank market is determined by FMDQ over-the-counter (OTC) Securities Exchange via its market organisation activities with the Financial Market Dealers Association (FMDA).

Aging under this new framework, the daily foreign currency position of banks has been revised. Consequently, authorized dealers are expected to now have a maximum limit of +0.5 per cent – 10 per cent of their shareholders’ funds unimpaired by losses as foreign currency position limits to support their obligations as liquidity providers at the close of each business day.

Primary dealers are expected to operate with other dealers in the interbank market, among other obligations that are stipulated in the Foreign Exchange Primary Dealers guidelines. Participants in the interbank foreign exchange market include; authorized dealers, authorized buyers, oil companies, oil services companies, exporters, corporate treasuries, end-users and other entities designated by the Bank.

The new framework of foreign exchange management has good prospects as it is expected to lead to moderation of the exchange rate of the naira. The flexible regime is expected to attract more capital inflows, minimize the disequilibrium in the foreign exchange spot market and eliminate the need for front-loading foreign exchange requirements. It is also expected that the new regime will make for an enhanced intervention framework for corporate treasurers to manage their liquidity positions and enable the staggering of the demand for dollars by end-users. Very important also, this flexible regime will enhance the ability of the Bank to manage exchange rate volatility, promote transparency and deepen the foreign exchange market.

Combating inflation

A key mandate of the CBN like its counterparts the world over, is the maintenance of price stability. In pursuit of this, the Bank must have a clear understanding of the dynamic nature of inflationary processes in the country. Inflation has continued to receive greater attention among the developmental and policy challenges of developing countries because of its adverse effects on poverty, business environment, growth and financial stability.

Nigeria, like other oil-exporting countries, is facing the challenge of sharp decline in oil revenues because of the fall in global oil prices that saw the price of Bonny Light, the premium brand, spiral from $118 per barrel (pb) in June 2014 to about $47 per barrel in September 2016. Weak global demand, increased production of shale oil and gas, and OPEC’s decision to sustain production levels contributed to the decline. Consequently, the economy witnessed a considerable growth slowdown from 6.22 per cent in 2014 to 3.96 per cent in the first quarter of 2015 which further declined to 2.35, 2.84 and 2.11 in the second, third and fourth quarters, respectively. However, by the second quarter of 2016, the economy slid into a recession as real GDP contracted by 2.06 per cent in the second quarter of 2016 from the contraction of 0.36 per cent in the previous quarter. Inflation reached double digit for the first time since December 2012 when it increased to 11.38 per cent in February 2016 from 9.62 in January, 2016. Low oil price has led to a sharp decline in fiscal revenues and lower accretion to reserves continues to encourage capital flight, leading to further pressure in the foreign exchange market with exchange rate pass-through effect on inflation.

The rising inflationary pressure, particularly from 2015 is largely due a whole range of to structural factors. These include poor electricity supply, high cost of energy arising from scarcity of petroleum products, increase in the prices of imported food, raw materials and finished goods following the depreciation of the foreign exchange market as a result of lower foreign exchange earnings from crude oil sales, seasonal factors, increase in electricity tariff, insurgency and insecurity in the North-east, and pipeline vandalism by the Niger Delta militants. Other factors include cumulative spending in the build up to 2015 general election, exchange rate depreciation, and budget deficits in the face of dwindling oil revenues.

Tweaking the forex market

In response to these emerging macroeconomic challenges, the monetary authorities have maintained a tight policy stance with a focus on maintaining price stability. In February 2015 abolished the RDAS (Retail Dutch Auction System) foreign-exchange window to stabilize the value of the naira by curbing speculation in the market. In an effort to ensure efficient utilization of the foreign exchange and encourage local production, the Bank in June, 2015 delisted 41 items from accessing foreign exchange at the foreign exchange rate market. On 11 January, 2015 it stopped the sale of foreign exchange to bureaux de change (BDCs). However, low accretion to reserves has put pressure on exchange rate making it difficult for the monetary authority to defend the value of the naira. This led to a deregulation of the exchange rate market in May 2016. The new measures include the introduction of naira settled FX futures; interbank FX market (IFEM), single market structure for both the public and private sectors.

The Federal Government is complementing these measures through reforms that focus on the need to increase non-oil revenues primarily through improved tax administration and policy, and deepening structural reforms for economic diversification. The overall objective is to ensure efficient expenditure that will result in significant savings while enhancing non-oil revenue collection. Part of this reform is the deregulation of the downstream petroleum subsector and electricity tariff increase.

Pro-people reform

A significant concern for many households in the country is the effect of these structural reforms, particularly the deregulation of the petroleum prices, hike in electricity tariff and exchange deregulation, in the short-run. Evidence from the comprehensive household survey, the National Household Living and Standard Survey (NHLSS) by National Bureau of Statistics (NBS) in 2009/2010 indicate that the official poverty rate has not sufficiently fallen as it stands at 46 per cent of the population (adult equivalent approach), or 62 per cent in per capita terms. The recent upward review of electricity tariff by 45 per cent may attract investment in generation, distribution and transmission to electricity sub-sector, by it has in the short-run led to increase in operation costs in various sectors of the economy. For example, the increase has affected the operation cost of small and medium-scale enterprises which eventually push up the prices of goods and services to the end-consumers. The deregulation of exchange rate has also shown an immediate severe consequence on inflation and high cost of servicing foreign debt.

Trade facilitation

If properly managed, international trade can be a game changer for a country in difficulty. It is not any less beneficial for prosperous and stable economies either. Trade increases a country’s access to markets, technology and knowledge.  Businesses gain when a country engages in international trade; it improves their competitiveness both locally and externally through improvements in efficiency and resource allocation and utilization. The economy benefits overall from expansion in output, employment and public revenues.

Policy on foreign exchange helps to ensure availability of liquidity in the foreign exchange market to support importation and also facilitate exports. Because, in international trade, other countries’ currencies are used, the foreign exchange market is critical. Recently, the Central Bank of Nigeria introduced a flexible foreign exchange policy to ensure stability of the naira exchange rate and also ensure that the foreign exchange market is liquid.

The reform of the foreign exchange market that comes with the introduction of the new flexible FX framework needs to be complemented by an efficient trade policy to guarantee maximum benefit for the country in terms of growth. In addition, the trade has to be export friendly. The CBN’s well thought through restrictions on the utilization of foreign exchange sourced from the FX market discourages importation of certain item deemed amenable to domestic production.

Rescuing the real economy

Although the primary mandate of the CBN is price stability its role in financing the real sector is underscored by the need to complement the fiscal policy of government.

CBN interventions in the real sector are intended to enhance private sector contribution to the growth process, mobilize savings, fund good business initiatives and facilitate production and trade as well as other commercial activities that boost the economy. These initiatives are expected to among other things, stimulate real sector development by providing enabling policy environment to increase lending to priority sectors and improve access to affordable and long-term funds to fast-track the development real sector.

The CBN has over the years identified key priority sectors and developed interventions tailored to support and promote their growth.  Some of the interventions include:

  • Commercial Agriculture Credit Scheme (CACS)
  • Agricultural Credit Guarantee Scheme Fund (ACGSF),
  • Agricultural Credit Support Scheme (ACSS)
  • Interest Drawback Programme (IDP)
  • Microfinance Policy Financial Inclusion
  • Entrepreneurship Development activities
  • Power and Airline Intervention Fund (PAIF)
  • Small and Medium Enterprises Credit Guarantee Scheme (SMECGS) and
  • SME Restructuring/Refinancing Fund (RRF).
  • The Nigeria Electricity Market Stabilization Facility (NEMSF)
  • Nigeria Incentive Based Risk Sharing System for Agricultural Lending  (NIRSAL).

Other emerging interventions include:

  • Youth Entrepreneurship Development Programme (YEDP)
  • Export Rediscounting and Refinancing Facility (RRF)
  • Export Stimulation Facility (ESF)
  • Intervention in the Textile Sector.

Empowering the private sector

N200 billion Commercial Agriculture Credit Scheme (CACS)

To fast track the development of the agricultural sector of the Nigerian economy by providing credit facilities to commercial agricultural enterprises at a single digit interest rate.  The Commercial Agriculture Credit Scheme was established by the CBN in collaboration with Federal Ministry of Agriculture in 2009.

n      From inception in 2009 to end  December 2015, the sum of N336.399 billion was released to the economy for 420 projects

and 31 state governments.

n      The cumulative amount released to the economy under CACS from both CACS Receivables from DMB and CACS

Repayment Account stood at N263.025 billion to 310 private and 36 state government projects;

n      Over 31,000 jobs were created; comprising about 10,000 direct and over 21,000 indirect jobs during the period under review (January – December 2015.

n      Five out of the 310 private projects are owned and managed by women.

Agricultural Credit Guarantee Scheme Fund (ACGSF)

The ACGSF was established by Decree 20 of 1977 to provide 75.0 per cent guarantee cover in respect of loans granted to the agricultural sector by Deposit Money Banks. The Scheme pledges to pay 75.0 per cent of any outstanding default balance to the bank after the security pledged has been realized.

During the fourth quarter 2014, a total of 19,291 loans valued N3.66billion was guaranteed to seven DMBs and 85 Microfinance banks, as against 17,318 loans valued N2.91 billion guaranteed in the fourth quarter in 2013. This brings the number and value of loans guaranteed in the year 2014 to 72,322 and N12.997 billion respectively

Interest Drawback Programme (IDP)

The IDP was introduced in January, 2003 for loans under the ACGS to provide interest rebates to farmers that borrowed under the ACGS to reduce the cost of borrowing and burden of high interest rate and to encourage repayment therefore reducing loan default and also reducing the contingent liability on the ACGS Fund. Farmers who borrowed from banks under the ACGS enjoyed interest rebate of 40 per cent on their loans provided they repaid the loans on schedule from the IDP.

As at end-December 2015, N2.45 billion has been paid to a total of 289,659 farmers who repaid on schedule.

N200 billion SME Credit Guarantee Scheme (SMECGS)

In order to encourage banks to give credit to the SME sector, the Bank launched N200 billion Small and Medium Scale Enterprises Guarantee Scheme in April 2010 to de-risk the sector and also to fast-track the development of the manufacturing and SME sub-sector by providing guarantee for banks’ credit. The guarantee covers 80 per cent of principal and interest and is valid up to the maturity date of a loan, with a maximum tenure of seven years inclusive of a two-year moratorium.

Since inception, 87 projects valued at N4.219 billion has been guaranteed under the Scheme.

N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF)

This scheme was established in 2013 with the aim of enabling Nigerians, particularly women and youth access to capital at a single digit interest rate of 9 per cent. The women are expected to be granted access to 60 percent of the Micro Small and Medium Enterprises Development Fund (MSMEDF), while persons with special abilities would have access to two percent of the Fund.

The cumulative wholesale amount disbursed under the MSMEDF Commercial Component from inception to end-December, 2015 stands at N58.999 billion.

N500 billion Power and Airline Intervention Fund (PAIF)

The sum of N500 billion was approved by the Monetary Policy Committee in 2010 for investments in debentures issued by the Bank of Industry (BOI) out of which the sum of N300 billion would finance power and airline projects and N200 billion for RRF. The fund, which is aimed at refinancing existing loans, leases and working capital, was made available to various projects at a discounted maximum rate of 7 per cent for a tenor of 10 – 15 years was created to stimulate credit to the domestic power sector and troubled airline industry.

Cumulatively, the total sum of N249.61 billion had been released to BoI from inception to date and disbursed through banks to 55 projects.  In addition N235 billion Restructuring/Refinancing of exposures of manufacturing/SME to the banking sector at 7 per cent was also injected to repair balance sheet of troubled banks and moribund industries.

Real Sector Support Facility (RSSF)

The Facility is expected to lead to improved access to finance, increase in output, job creation, diversification of the economy, increase in foreign exchange earnings and reserve. The RSSF which was established in November 2014 replaces the SME Restructuring & Refinancing Facility (SMERRF) which has been discontinued by the Bank, with the view to refocus the its intervention on strategic new/start-up projects in the real sector (manufacturing and agricultural value chain SMEs) of the economy.

Between November 2014 and February 2015, the sum of N143.5 billion for four projects in the petrochemical and food processing sectors have been approved for funding under the RSSF. The projects are expected to create about 17,000 jobs.

N213 billion Nigeria Electricity Market Stabilization Facility (NEMSF)

The N213 billion Nigerian Electricity Market Stabilization Facility is aimed at settling certain outstanding debts in the Nigerian Electricity Supply Industry (NESI). In specific terms, the proposed facility will cover legacy gas debts and the shortfall in revenue during the Interim Rule period (IRP). It is expected that this will guarantee the take-off of the Transitional Electricity Market (“TEM”).

In the last quarter of 2014, the definitive agreements were signed between the Nigerian electricity Industry players towards the disbursement of the NEMSF Facility. The parties that signed the agreements included Gas suppliers (Shell, Chevron, Agip etc), Generating Companies (GENCOs), Distribution Companies (DISCOs).  N64.755 billion was distributed to 18 NESI participants comprising of five DISCOs, seven GENCOs and six GASCOs.

The facility is expected to be repaid within a 10-year period, and it was to enable the beneficiaries to address challenges militating against electricity power generation and distribution. The funds is expected to be invested in generation plant maintenance, transmission upgrades and distribution networks including transformers and better metering for end consumers among others.

The Anchor Borrowers’ Programme

The Anchor Borrowers’ Programme is an initiative of the CBN designed to assist local farmers towards increasing production and supply of feedstock to processors, reduce importation and conserve Nigeria’s external reserves. The programme involves a three pronged plan, namely: the out-grower support programme; training of farmers, extension workers and banks; as well as risk mitigation.

The target groups are rice, oil palm, wheat, cotton and fish value chain farmers over a period of five years.  The Programme was launched in November 2015 with about 10,000 rice farmers in Kebbi State.

Nigerian Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL)

This programme started in 2010 to create incentives and catalyze processes to encourage the growth of formal credit (direct and indirect) for the agriculture value chain, as a mechanism for driving wealth creation among value chain participants.  The Integration is driven by NIRSAL’s five pillars, particularly Risk Sharing Pillar and the Technical Assistance Pillars.

  • Risk Sharing Facility – N45billion
  • Insurance Facility – N4.5billion
  • Technical assistance facility – N9billion
  • Agriculture Bank Rating Scheme – N1.5billion
  • Bank Incentive mechanism – N15billion

Emerging Interventions

Youth Entrepreneurship Development Programme (YEDP)

The CBN launched the Youth Innovative Entrepreneurship Development Programme (YIEDP) on March15, 2016, in furtherance of its intervention in the real sector of the economy and job creation effort. The programme is open to youth corps members and those with not more than five years of post-NYSC experience including artisans. Each eligible youth can access a credit line of up to N3 million at single digit interest rate with opportunity to migrate to other CBN intervention schemes.

Export Rediscounting and Refinancing Facility (RRF)

The intervention is managed by NEXIM to encourage and support DMBs to provide short-term pre- and post-shipment finance in support of exports by providing a discount window to exports financing banks and therefore improving their liquidity and exporters’ access to export credit.  It covers Rediscounting: (Short-term) Pre-Shipment and Post-Shipment as well as Refinancing (Long-term).

Export Stimulation Facility (ESF)

The ESF is managed by NEXIM and designed to improve access of exporters to concessionary finance at single digit interest rate to expand and diversify the non-oil export baskets; Attract new investments and encourage re-investments in value-added non-oil exports production and non-traditional exports; Shore up productivity and create more jobs within the non-oil exports value-chain of Nigeria; Support export oriented companies to upscale competitiveness and expand their export operations as well as capabilities; Diversify and increase the level of contribution of non-oil exports revenue for sustainable economic development; and Broaden the scope of export financing instruments.

Intervention in the textile sector

The Bank introduced a one-off special intervention with a seed fund of N50 billion facility to resuscitate the textile industry in Nigeria. The facility will be used to restructure existing loans and provision of additional credit to cotton, textile and garment (CTG) companies in Nigeria as part of its efforts to promote the development of the textile and garment sector.  The fund is managed by BOI with single digit interest rate and a two-year moratorium.  The Bank is expected to exit the fund by December 31, 2025.

Making monetary policy its work

The CBN is ensuring that monetary policy is of immense importance to development strategists due to its impact on real sector growth and financial system stability − both essential ingredients for sustainable economic growth.

The Bank’s secondary objectives may low unemployment, foreign exchange stability and equilibrium in the balance of payments position. It has employed a dynamic monetary policy implementation framework involving continuous assessment and transformation, in response to the dynamic financial environment. The present framework involves achieving a stable currency value through stability in short-term interest rates around an operating target rate, the Monetary Policy Rate (MPR), which serves as an indicative rate for transactions in the money market and retail credit rates.

However, it must be noted that sustainable output growth cannot be achieved solely by monetary policy and there is an irrefutable role for the fiscal authorities play hence the CBN’s continuous engagement with Nigeria fiscal authorities to find common grounds for cooperation. The fiscal authorities are responsible for setting the economy’s macroeconomic goals as well as determining what policies are necessary to attain them. Monetary policy only has a complementary role. The achievement of the price stability mandate, unfortunately, often puts monetary and fiscal policy in conflict with each other

Late in September, the CBN and the Federal Ministry of Finance had slight differences in opinion on interest rate in the country. While the fiscal authorities wished rates could drop a little, the Bank thought it should retain the 14 per cent it had slammed on the market to curb inflation. A truce was eventually reached when it was finally agreed that the MPR should hold in the short term, in the overall interest of the economy.


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