LCCI tackles CBN on fiscal, monetary policies direction

The Director-General Lagos Chamber of Commerce and Industry (LCCI) Dr Muda Yusuf has carpeted what he called the divergent views on foreign exchange (forex) policy and thereby urged the Monetary Policy Committee (MPC) to give more attention in its deliberations to the forex policy because of its implications for economic performance and the confidence of investors.

According to him, forex policies are as important as liquidity management concerns.  He said forex framework is key to the price stability mandate of the Central bank of Nigeria (CBN).

According to him, “The Chamber notes with concern the divergent positions of both the fiscal and monetary authorities on the country’s foreign exchange policy framework. It is important for the fiscal authorities, CBN and Economic Advisory Council to be on the same page as far as the country’s foreign exchange policy framework is concerned. This lack of coherence among policymakers’ sends a negative signal to the investment community; aggravates uncertainty and undermine the confidence of investors.

“The Chamber notes the decision of the MPC of the CBN to retain policy parameters during its March 2021 meeting with Monetary Policy Rate (MPR) at 11.5 per cent; Cash Reserve Ratio (CRR)at 27.5 per cent; and Liquidity Ratio at 30 per cent. We appreciate the dilemma which the current stagflation condition presents to the monetary authorities. We note the imperative of striking a balance between stimulating output growth and curbing intensifying inflationary pressures.”

He said holding policy stance seems to be the most appropriate decision at this moment considering recent macro developments in the economy.  He recalled that the CBN governor stated that the bank’s current policy focus anchors on boosting output growth given the fact that the economy narrowly exited recession in the fourth quarter of 2020.

He argued that sustained intervention efforts of the bank would further enhance credit flows to the real economy, stimulate output growth and ultimately moderate inflationary pressures.  Yusuf lamented that with unemployment rate at a record high of 33.3 per cent and weak employment levels in manufacturing and services sector, tightening monetary policy stance would stifle access to credit, and undermine the pro-growth agenda of the CBN.

The LCCI chief lamented that headline inflation rose by 17.33 per cent in February 2021, the highest price level since March 2017.

He noted that consumer prices are currently being driven by cost-push factors including heightened insecurity resulting in persistent decline in agricultural output; foreign exchange illiquidity, exchange rate depreciation, higher energy prices and upward adjustment of electricity tariffs, which are beyond the control of monetary authority.

However, he endorsed the position of the MPC on need for fiscal authorities to expedite actions in addressing these challenges and other investment climate issues constraining the supply side of the economy and fuelling inflationary pressures.

He suggested that the MPC gives more attention in its deliberations to the foreign exchange policy because of its profound implications for economic performance and the confidence of investors. According to him the forex policies are as important as liquidity management concerns.  Foreign exchange framework is key to the price stability mandate of the CBN.

He canvassed the need  for fiscal authorities, CBN and Economic Advisory Council to be on the same page as far as the country’s foreign exchange policy framework is concerned.

“This lack of coherence among policymakers’ sends a negative signal to the investment community, aggravates uncertainty and undermine the confidence of investors”, he added.