Mr Godwin Emefiele, the Governor of Central Bank of Nigeria (CBN), has argued that monetary policy offer limited tools for dealing with current economic challenges in the country.
Emefiele said this while delivering a keynote lecture at the 2017 Annual Conference of Nigerian Bar Association (NBA) in Lagos.
The lecture was titled “The Dilemma of Monetary Policy During a Recession: Potential Options for Nigeria”.
Emefiele identified the current challenges facing Nigeria as falling Gross Domestic Products (GDP) growth rate, rising inflation, persistently high interest rates, falling foreign exchange reserves and depreciating exchange rate.
He said the CBN could not tackle these challenges with the tools available to it with the objective of changing the outcomes for the better.
The governor pointed that CBN had always used monetary policy to control interest rates and money supply to moderate inflation and achieve economic growth.
Emefiele said these problems occurred simultaneously and needed to be dealt with over a short period of time.
According to him, the real dilemma the country is faced with is that there are significant trade-offs in outcomes of economic variables regardless of what specific monetary policy the nation implemented. “For example, one would expect that given the bank’s core mandate to pursue low inflation, the central bank would implement policies geared towards that.
“In order to tackle high inflation, the correct monetary policy would be to tighten money supply either by increasing the Cash Reserve Requirement (CRR) of banks, mopping up money through increased Open Market Operations or raising the Liquidity Ratio of banks.”