Admittedly, Mr Yemi Cardoso’s 63-paragraph keynote at the just concluded CIBN conference in Lagos was quite inspiring. But it had a few contradictions.

For example, the CBN Governor says he is confident that “with continued tightening measures for the next two quarters, they will be able to effectively manage inflation”.

As part of the tightening measures, the CBN has been carrying out “regular Open Market Operations (OMO) to mop up excess liquidity from the banking system”. As a matter of fact “an OMO auction was recently held with a stop rate of 17.5% for the one year tenure”, he says. The Bank has also removed “the cap on the remunerable Standing Deposit Facility (SDF) to increase activity in the SDF window and manage liquidity”.

CBN to implement new round of recapitalisation for banks

These aggressive tightening measures end up turbo-charging the interest rates environment thereby shrinking credit to the real sectors of the economy and are therefore inconsistent with his expectation of “an increase in the GDP growth rate to 3.97% in the fourth quarter” of 2023.

By his own admission, challenges in the economy “have led to increased interest rates, discouraging investments in productive activities”.

He equally notes that “countries such as Turkey and Argentina have experienced upward inflationary pressures mainly due to supply shocks, despite several policy rate adjustments”.

Mr Cardoso asserts that “our monetary policies will aim to achieve price stability, foster sustainable economic growth, stabilize the exchange rate of the naira and reduce interest rates to facilitate borrowing and investments in the real sector”. This statement fails to take into cognizance the policy trilemma facing central banks. Monetary policy tightening may succeed in reducing inflation (especially if caused by monetary factors) and stabilize the exchange rate but not a reduction in interest rates simultaneously. This is an economic reality.

Mr Yemi cites Brazil, Mexico, and Indonesia as examples of countries “with low unemployment rates of 7.8%, 3.1%, 5.4% respectively”. According to him, “these are unemployment levels that we in Nigeria should aspire to achieve”. This statement contradicts the NBS new methodology and its latest unemployment figure of 4.1% which is below that of Brazil and Indonesia.

In paragraphs 26 and 27, the CBN Governor talks about developments in the payments landscape but missed the opportunity to promote the eNaira and disclose its current status.

The 30-page speech found no space for other key projects of the Bank, such as the InfraCo and the RT200 programme designed to improve forex supply.

Much as the plan to refocus the CBN is laudable, every effort should be made not to throw away the baby and the bath water.

Be that as it may, Mr Yemi Cardoso, in paragraph 30, makes a statement I consider the most impactful where he says “It is crucial to give the same visibility to human condition data as we do to macroeconomic data to ensure that the expected economic progress benefits the masses and helps lift them out of their current dire conditions”.

This indelible statement should guide the path of monetary and fiscal policies going forward.

The idea of recapitalisation of banks is a welcome one.

It goes without saying that capital is needed to finance big-ticket projects especially when the government  is targeting a 1 trillion dollar economy in a few years’ time.

Also, if the experience of 2005 is any guide, the recapitalisation exercise is likely to rejuvenate the stock market.

But i think the strategy should be somewhat different from the approach adopted in 2005. It should be more about incentives than coercion.

Some DMBs (especially many in the FUGAZ category) are already making efforts to increase their capital base.

The CBN can use prudential guidelines to strengthen the present tiered arrangements. The use of the CAR (the ratio of a Bank’s capital to risk weighted assets) is a good example. The apex Bank can also use differential cash reserve requirements as well as preferential participation in the forex market for well capitalised banks as some of the incentives.

For whatever it is worth, smaller banks playing at the regional level should not be regulated out of existence.