The International Monetary Fund (IMF) has welcomed the restrictive monetary policy stance adopted by the Central Bank of Nigeria’s (CBN’s) Monetary Policy Committee (MPC) since last year.

The IMF stated this in its recently released staff report for 2011 Article IV Consultation.
Part of the 80-page document, also recommended that the apex bank focuses on a clear inflation objective and allow for gradual adjustment of the naira.

The MPC had on Tuesday surprisingly increased the Cash Reserve Ratio (CRR) to 12 per cent, from 8 per cent. The committee had also reduced the Net forex Open Position (NOP) to 1 per cent from 3 per cent. However, the MPC left the Monetary Policy Rate (MPR) unchanged at 12 per cent and also kept the Standing Deposit Facility (SDF) and Standing Lending Facility (SLF) rates on hold at 10 per cent (MPR-200 bps) and 14 per cent (MPR+200 bps).
But the IMF said: “Staff supported the tightening of monetary policy over the past year and the adjustment of the soft exchange rate band last October.

Staff discussed the CBN’s decision to intervene heavily in the forex market during much of 2011 to avoid a depreciation of the currency.
“Staff considered that this policy could have risked excessively depleting reserves. Staff recommended focusing on a clear inflation objective and allowing gradual adjustment of the naira over time in response to market conditions.

“It indicated that more empirical work on the pass-through from exchange rates to inflation would strengthen the CBN’s ability to detect and respond to inflationary pressures. With increased openness of the capital account, the exchange rate will become more sensitive to interest rate differentials and shifts in international investor sentiment.”
The IMF argued that with the recapitalisation of the then rescued banks in late 2011, the resolution of the 2009 banking crisis had been largely achieved.

It also welcomed the initiatives to strengthen regulatory and supervisory framework in Nigeria.
“Stricter regulations on corporate governance and risk management; programmes to improve the CBN’s ability to assess systemic risks; and initiatives to boost cross-agency and cross-border cooperation among regulators will help to avoid a repeat of conditions that prevailed prior to the 2009 crisis,” it added.

Commenting on the Sovereign Wealth Fund (SWF), it said: “In light of the risks to the global economy, staff recommended that priority be given to rapidly building up the SWF’s precautionary balances.”

Source: ThisDay