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Catalyzing Change: Reforming Monetary Policy in Nigeria — Transcript

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0:01okay good afternoon everybody and uh
0:03thank you all for joining us here at the
0:06IMF for Governor's St it is my great
0:10pleasure to introduce Yi cardoso
0:13governor of the Central Bank of
0:15Nigeria who before taking his current
0:18appointment about six months ago I think
0:19almost exactly uh had a long and
0:22distinguished career in both private
0:24banking and the public
0:26sector to uh to put it mildly uh uh it
0:30has been a period of much Challenge and
0:34hugely important reforms uh in the
0:36monetary area in Nigeria so it's a great
0:39opportunity to hear from us directly
0:41from him uh how he has gone about uh
0:45leading his team uh in addressing the
0:47challenges that he has faced thank you
0:49so much YY for joining us thank you
0:51thank you for having me so uh Governor
0:55you inherited uh tightly managed and to
0:59put it mildly again uh overvalued
1:01exchange rates and have taken some
1:04really bold policy decisions uh to end
1:06the system of multiple fixed exchange
1:09rates that you had if I could ask how
1:11you approached the sequencing of reforms
1:16um what issues gave you most cause for
1:19concern and you know how you went about
1:22mitigating the risks thank you very much
1:25that's that's quite a jam-packed
1:28question there what
1:30I will try and unpack it as best as I
1:33can um I would say and and again let let
1:38me say a very big thank you for having
1:41me here today actually over the past few
1:43days because I've taken the opportunity
1:46to listen and exchange views and
1:50understand much better the problems that
1:53are facing the global economy so that's
1:55a very unique opportunity for which I
1:58want to say very very big thank you for
2:00the invitation now with respect to
2:04Nigeria and the
2:07sequencing of events and sequencing of
2:12reforms I I think in in in terms of
2:15context it's clear that for those who
2:18don't know that I came in at a time of
2:23very very great difficulty um for the
2:26central bank and the monetary
2:29authorities
2:30um of course um inflation was high and
2:35the exchange rate was under tremendous
2:39stress and um there was a crisis of
2:42confidence and in such a
2:45situation the biggest challenge as far
2:49as I can see was that of trust and the
2:54deficit in
2:55trust
2:58people
3:01simply had the impression
3:04that things were
3:07bad um there was
3:11fear and they somehow they didn't see
3:15any ending sight to what seemed like a
3:18very gloomy situation so it was very
3:22important
3:24to understand that and in terms of
3:28sequencing
3:30do whatever it was possible take the
3:32necessary steps to begin the process of
3:37building back trust now that is not
3:39something that happens
3:40overnight and I recall that when I went
3:44for the Senate
3:47hearings um I one of the things I said
3:51at the time was that I recognized the
3:54fact that there was a huge backlog of
3:57about $7 billion in forward transactions
4:02which had not been met and which seemed
4:04to provide a lot of apprehension to
4:07Nigerians and I made a
4:10commitment to take care of
4:13them how I was going to do that I didn't
4:17know but I thought it was very
4:21important to make that commitment there
4:24in order to build back um the the trust
4:30deficit that one was going
4:34into and
4:36also
4:38I had to reach out to various
4:44stakeholders particularly the
4:47international investors and in naturual
4:50fact the first day I started at the
4:53bank the one of the first groups I dealt
4:55with were the international investors
4:57because they had been following
4:58activities and they were very keen to
5:01know what was going on and I felt it was
5:04very important to continue to have that
5:07dialogue okay which I did and used that
5:11as an opportunity as I said to rebuild
5:15trust with people and with various
5:18stakeholders and then of course the next
5:20thing in terms of sequencing was to make
5:23it abundantly
5:27clear that
5:30the era
5:31of
5:35um interventions which really hadn't
5:39taken us anywhere were over and that I
5:43intended to go back to Orthodox monetary
5:47policy so I think those were very very
5:50important things to make very clear and
5:54I think that helped obviously to state
5:57to set the stage for what came after it
6:01it's very
6:03important to continue to reemphasize
6:06those things in the process of building
6:08Trust of course communication was also
6:11very key and it has to also be sequenced
6:15and I know that at the outset there was
6:19concern that one was not sane enough but
6:23there was a strategy to that because I
6:25felt it was important to at the outset
6:29come out and say things you needed to
6:33say when you needed to say them and I
6:36recall that at a particular Forum which
6:39was the chartered Institute of Bankers
6:42which is held on a yearly basis I used
6:45that opportunity to communicate very
6:48strongly and normally um that is a forum
6:53that perhaps you know the governors talk
6:55for maybe 15 minutes half an hour and I
6:58took over an hour
7:00okay but I made sure I got everything
7:04including giving forward Guidance with
7:08respect to the banking sector and to let
7:11people know that we were going to have a
7:15recapitalization exercise this was in
7:18November and the um guidelines didn't
7:21come out till just recently so they had
7:24plenty of time to start thinking that
7:27through so these uh are some of the
7:30sequences that when went through in
7:32terms of what kept me what the some of
7:35the issues that you know one was
7:37concerned about and how did I approach
7:39them and all that there was a lot of
7:42worry with respect to the the excess
7:45money supply you know and
7:48um one had to take um bold measures with
7:54respect to um mopping up liquidity and
7:57then subsequently of course hiking
8:00interest rates and um I know that the
8:04first monetary policy committee meeting
8:06we had I did a 400 basis point increase
8:10which was
8:11unprecedented but we had to do it we had
8:15to do it we had no
8:17choice and we followed that up with
8:19another 200 basis points and we had to
8:21do that also because to the extent that
8:24we'd
8:25committed to price stability
8:29we were convinced that we had to do
8:32whatever was
8:34necessary to ensure that prices and
8:38inflation was the right steps were put
8:43in place to ensure that we we we we got
8:46there now it's in saying all this it's
8:48also important to recognize and I say
8:50this all the time that whatever policies
8:53you make if they don't impact the man on
8:56the street then you've not done anything
8:59absolutely so I I I have a question on
9:02that uh and it's a good way to segue to
9:06that which is you know you have
9:07emphasized how important communication
9:09was particularly bankers and and other
9:12stakeholders but exactly this point on
9:15how to how to influence expectations if
9:18essentially what you've embarked on is a
9:20shift towards an inflation targeting
9:23regime you know at least in you know
9:26moving in that direction so um
9:30and what you're losing in a way is like
9:32the exchange rate being used as a
9:33nominal anchor as as as as a one of the
9:37big inputs in terms of setting
9:39expectations how how is it that you're
9:41communicating with people on the streets
9:42how is it that you're expecting and
9:45hoping to influence uh behavior and
9:47price setting uh uh uh price setting
9:51activity sure I it's a very good
9:53question and I think the answer to that
9:56is that one is also so reasonable in
10:02expectations knowing fully well that all
10:05these things will not transform
10:07overnight in actual fact when we look at
10:11the situation of Nigeria a lot of the
10:13problems that have happened there in
10:15terms of um the the the monetary side
10:17have taken place over a long period of
10:19time and I think continuous dialogue and
10:23communication is essential in letting
10:26people understand why we're doing
10:29certain things where we're trying to get
10:31to and continuously going back to
10:35reemphasize what we've done we've used
10:38the opportunity of the
10:41MPC to have a question and answer
10:45session after every MPC which basically
10:49gives everybody the opportunity to ask
10:53all the questions they want and for us
10:55to to to reemphasize the certain
10:59measures we're taking and why we're
11:00making and why we're doing that and we
11:02will continue to do so and in actual
11:04fact we will strengthen we will
11:07strengthen the communication mechanisms
11:10that we have in place we will certainly
11:12not take it for granted that people
11:16understand what it is we're doing and
11:17why we're doing that because it is quite
11:19a complex subject to be to be perfectly
11:21honest that even for those who are the
11:24most enlightened they sometimes struggle
11:27So to that extent we will do everything
11:29possible to can use different platforms
11:32as the case may be to ensure that we can
11:34reach out to as many as as as as
11:38possible I do think that um what we've
11:41seen recently with regards to the
11:44exchange rate okay helps to give people
11:48hope in the sense that when I started we
11:52had a situation where within about a
11:54month or two we were we were we were
11:57regarded as having the worst per
11:59performing currency of any
12:02country 6 months later we are judged to
12:05have the best performing currency of any
12:08country so I think those
12:11[Applause]
12:16things those things speak for themselves
12:20a situation
12:23where in the recent past the greatest
12:27amount of liquidity on a daily basis was
12:30in the region of 2 300 million us to a
12:33situation where over the course of the
12:35past 6 months we we've we've traded up
12:38to a billion dollars this is FX
12:40liquidity yes so the FX liquidity has
12:44certainly you know taking a bet a center
12:47stage quite frankly in the in the
12:50activities of the of the monitor side
12:52and I think people see that they see the
12:54exchange rate coming down they
12:57understand that or we we continue to
13:00talk about the fact that they pass
13:02through there's there's there's a
13:04there's a lag but ultimately the
13:08objective is to ensure we can moderate
13:10inflation thank you
13:12Amy of course in the background um to
13:17the conduct of monetary policy is uh the
13:20Fairly sizable fiscal deficit that the
13:22government runs the federal government
13:24runs and the financing of that deficit
13:27has been one of the sources of pressure
13:28for looser monetary policy um how is it
13:33that you're coordinating uh with with
13:35the your the minister your counterpart
13:39um W uh in in in how how are you
13:42calibrating policies have you started
13:45coordinating better uh and how is it
13:47that you expect the federal government
13:49will fund itself uh on a sustainable
13:51basis yes and another very good question
13:54and a question that comes up quite
13:56regularly and of course uh um first and
14:00foremost let let me be upfront in saying
14:06that the monetary policy is just one
14:08side of it no question about that and um
14:12with the whole
14:15um inflation targeting objective which
14:19you spoke about earlier we can't do it
14:22without successfully collaborating with
14:25the fiscal side it simply will not work
14:27so it's clear to us that we need to have
14:32a very good handshake with the fiscal
14:35side and a handshake that takes us in
14:38the direction that we want to go to we
14:42understand of course that again breaking
14:44that down that the food inflation
14:48perhaps we can use that as as a good
14:51example food inflation is something that
14:54is not within the perview of of the
14:59monetary side but we
15:01definitely um work together and Rob
15:04mines together and
15:06recently um we made um we we had some
15:12fertilizers which had come out from the
15:14previous administration okay and we you
15:17know pushed that over to the Ministry of
15:20Agriculture to help them okay going into
15:23the next um planting season um with
15:26respect to the to meeting their overall
15:28objectives
15:30in the NPC we have the presence of very
15:34very senior leadership from the fiscal
15:37side as a as a member of the monetary
15:39policy Committee in the person of the
15:42permanent Secretary of the Ministry of
15:43Finance and um who is here today
15:47and and we always have um very good and
15:52open Dialogue on issues so we're able to
15:55hear the different sides of of of the
15:58situation and in indeed beyond that
16:01we've set up different committees that
16:04work hand inand with respect to um
16:08ensuring that we are on the same page
16:11with respect to taming inflation now I
16:15think it is also
16:17commendable um that the Ministry of
16:20Finance have themselves begun that
16:24process of um reducing the outstanding
16:28you know monetizing the sounding
16:31securitizing a biger part in the
16:32outstanding ways and means and I think
16:33that is extremely commendable and I
16:36think we're really it's less of an issue
16:39now so we can work better together
16:43bearing in mind as I said that as we
16:45move to inflation targeting it's going
16:48to have to be a very strong partnership
16:50for it to be
16:52successful thank you Amy uh I want to
16:54leave a bit of time for questions from
16:56the floor um so one last question for me
17:00uh it strikes me that you really have uh
17:04achieved quite a bit over the last six
17:06months in office um you highlighted the
17:09overshoots and then now correction the
17:11exchange rate but I mean stepping back a
17:14little bit you know as a policy maker
17:17wearing this uh hat this playing this
17:19very important role what what are one or
17:21two key lessons that you take away uh
17:25from you know your uh your first six
17:27months in office
17:36I I cannot I cannot
17:39overemphasize the importance of trust I
17:42cannot overemphasize it and to be honest
17:44when I look back on
17:46it
17:49irrespective of the
17:51Courage the boldness to do certain
17:55things and the understanding of issues
17:58that many may not understand by virtue
18:00of the fact that you have access to data
18:03and other
18:05things if the trust isn't there you will
18:08sub
18:09optimize so it's clear to me that trust
18:16is so critical in
18:22successfully anchoring a a a a major
18:26major um task like this trust is very
18:31very very important and then um in terms
18:35of of lessons also I think so a bit
18:39surprising quite frankly that um perhaps
18:44one had
18:46expected that there was a greater
18:49understanding of a lot of the issues um
18:53complex though they are one expected
18:56there was a greater understanding and
18:58then
18:59um another lesson is the fact that one
19:04found and again communication is very
19:07important in this that um expectations
19:11of people of the Central Bank in my view
19:14were you know totally misplaced um
19:17people expected you could wave a wand
19:19and that would be the end of the
19:21problems and in fact in many cases
19:23blamed you for the woes that you had
19:26nothing to do with other than the fact
19:28that you were there to try and find
19:31Solutions and on one or two occasions I
19:33actually had to remind people that
19:35listen I didn't do this I am part of the
19:38solution so please let's roll up our
19:41sleeves and work together to ensure that
19:44we can you know surmount them rather
19:47than you know a at some point in time
19:51pretty
19:52hostile re if I could have a quick
19:54followup I mean like you've emphasized
19:56the importance of credibility TR
19:59but how much was that garnered by doing
20:02the policies that you did um or was it
20:06something that you know is it just your
20:07words that you think allowed you to
20:09build uh to build that trust and
20:11confidence yes I think
20:14consistency in saying certain things and
20:18then doing them I think was very
20:21important and again I think we have a
20:23situation today where Nigerians are very
20:26restless and people will better very
20:29impatient they wanted results very
20:30quickly but you had to come out and
20:32explain why it couldn't happen overnight
20:35you had to be honest about it and even
20:37with the policies that you put out where
20:40certain things needed to be tweaked you
20:42needed to have the humility to tweak
20:45them agility and nimbleness and
20:48recalibrating uh as needed also okay so
20:51I think we have some mics uh for uh
20:53people uh that may want to raise
20:55questions gentleman right at the back
20:57behind okay if you could say say uh what
20:59institution you're with and you know one
21:01question very short one please so we can
21:04have two three
21:07questions thank you um my name
21:10isuku I'm executive director in risk
21:12management at Morgan Stanley New York um
21:16so my question is um most developing
21:19nations including Nigeria you know would
21:22use uh external savings to finance
21:26developments which makes Cor risk a
21:29dominant risk factor so now the question
21:32is um what are your views or what what
21:35is your leadership doing in uh making uh
21:39or developing currency risk markets as a
21:42as a policy imperative instead of as as
21:44an inspiration to tame you know the
21:47inflationary pressures that Nigeria is
21:49facing thank you uh lady here in front
21:52please in green we're going to take
21:55three questions and then I'll sure
22:02hello everyone um good afternoon
22:04Governor my name is nin n um with arise
22:08news uh one of the things that the bank
22:11has tried to do to bring solution to
22:14what we've been facing in Nigeria is
22:16defending AA so Mr Governor if you can
22:18just clarify for us um how much has been
22:21spent spent in defending the nir in the
22:23first quarter of this year and this
22:25defense is it from the our reserves or
22:28from fpi inflows and if it's from the
22:31reserves which have now been depleting
22:33and with the IMF um projecting a further
22:36drop to I think $24 billion later in the
22:39year uh can the bank realistically
22:42continue with this strategy thank you
22:45thank you so much lady over
22:53there good afternoon Mr Governor my name
22:56is titio adola I'm an acad mic at the
22:59University of aberin and the president
23:01of the African International economic
23:03law Network I was wondering how how you
23:06would like to engage with the academic
23:08community in Nigeria and the diaspora to
23:11curate informed recommendations based on
23:15empirical and doctrinal research thank
23:17you thank you so much so uh Governor yes
23:20first question on currency risk if
23:22you're doing anything on uh on
23:24addressing
23:26U or facilitating income in currency
23:29risk markets and then you heard the
23:30question about you know what's what's
23:32it's going to take to defend the naira
23:34and engagement with the academic
23:35Community sure okay um currency risk the
23:39answer to that is um yes but again these
23:43things need to be sequenced so in due
23:46course as and when those policies come
23:49out I think people will um know exactly
23:53what where where we are headed in that
23:55direction but it's certainly something
23:56that we are looking at we're looking at
23:59that um defending the naira which from
24:02every indication seems to be an elephant
24:04in some
24:08room now I want I I and I want to try
24:12and make this as clear as
24:16possible
24:18um it is not our intention to defend the
24:23naira it is not and much as I I
24:29have
24:31read in the recent few
24:34days um some opinions with respect to
24:39what is happening with our reserves and
24:42um the Central Bank defending the
24:46naira if you think back to what our
24:51overall policy and philosophy has been
24:53here you can see it's
24:56counterintuitive okay basically
24:59what we're
25:00encouraging is for the market to willing
25:05buyer willing seller price Discovery and
25:11ultimately I I perceive a future where
25:15central bank will really not need to
25:17intervene okay except in in in in very
25:22very unusual
25:24circumstances um what is important to us
25:27is that there sufficiently liquidity in
25:28the market which I've spoken about here
25:31today um fine 1 billion is the outn
25:36sometimes it's 600 700 million us as a
25:39case may be and that will continue
25:41hopefully so as long as we have a
25:45vibrant um currency Market why do we
25:48need to go in there to to intervene we
25:50don't need to um I I I I can understand
25:54that especially at the outset there have
25:57been little um cases where the bureau
26:03the BDC um there's a need to get that
26:07segment going and you know small amounts
26:11of money relatively tiny amounts of
26:13money have gone into that to catalyze
26:16that happening because it's important
26:18that um again individuals have access to
26:22funds to send abroad their kids abroad
26:25and do things which are important Health
26:27etc etc so it's important not to to to
26:30to to keep them out of the the the main
26:33stay so that yes but in terms of of
26:37intervention frankly that's really not a
26:40intention at all to to intervene in the
26:42market and what you've seen with respect
26:45to the shifts in our reserves is the
26:48shifts that you'll find in anybody's in
26:51any country's Reserve situation um where
26:53for example um debts are due and certain
26:58payments need to be made they are made
27:00because that is also part of keeping
27:03your credibility intact and other times
27:07money comes in and you know takes it up
27:10again and if you watch in the next
27:12couple of days
27:14we've I think between yesterday and
27:16today we had about 600 million us that
27:19came into the into the reserves account
27:21so I wouldn't let people get too excited
27:24about about this thing all I will say is
27:27that we are looking
27:28towards ensuring that we have a market
27:32that operates on its own willing buyer
27:35willing seller and price Discovery
27:37that's where we're going to the the the
27:39shifts you've seen in our reserves has
27:42really you know little and nothing to do
27:45with defending an Iran that's certainly
27:47not our objective um then Community
27:51engagement um
27:53yes I I must say that within the central
27:57bank I'm very proud of the fact that we
28:00have a very very strong academic
28:03Community within that environment it's
28:06something to be very proud about and I
28:08can say that it if there's one thing
28:10that surprised me going into the central
28:13bank I had no idea that the bank had
28:16that level and that quality of resources
28:20I had absolutely no idea so I think as
28:23things begin to settle you find a very
28:27Vibrant Community
28:28that is willing to look out and
28:30collaborate with their peers in other
28:33parts of the world thank you Governor
28:35you know uh we have a little bit of time
28:38left and I couldn't help but
28:40uh feel like I need to ask you a
28:43question you know what is it about the
28:46political economy environment of course
28:48there were elections last year but what
28:50is it that has changed to allow you um
28:53to position yourself like this on The
28:56Nair I mean our country is generally the
28:58tendency is to support exchange rates uh
29:01the Instinct I should say is to have
29:03strong exchange rates support the
29:04exchange rate defend exchange rate as
29:07was posed but you know is it simply that
29:10we've run out of reserves we've run out
29:11of room uh and or you're seeing U you're
29:15seeing uh exports being impacted
29:17tremendously uh is it economic
29:19circumstances or is it political that's
29:20allowing you this this uh room for
29:23maneuver I think it's I think it's a
29:25combination of both I think on the
29:29on on on the fiscal side and on the
29:32leadership on the political leadership I
29:35think there's um pretty strong
29:38understanding of what needs to be done
29:41to to get Nigeria out of a pretty
29:44difficult situation and I also believe
29:48that seeing the massive swings we saw
29:52where the naira was almost falling off
29:54the cliff um really didn't need
29:58for any more you didn't need any more
30:02you that you need that minimum con
30:05convention to be able to say that look
30:08this there has to be a way
30:12certain a certain um way and manner of
30:16doing things with fixed exchange rates
30:17didn't work and um we just needed to be
30:20bold enough to try something different
30:23and I think that helped in many ways at
30:27the same time I must say not easy
30:30because in a situation like that people
30:32are extremely impatient and people many
30:36don't believe that the path you're
30:38taking will will get you there but I
30:41think we were Resolute enough and we
30:44were prepared to take the hard decisions
30:48quickly enough that made a
30:51difference Governor cardoso y me thank
30:54you so so much for sharing your
30:55experience uh the lessons that you've
30:57learned
30:58it's certainly salutary and really
31:00important for uh many other countries
31:03also thank you so much Governor thank
31:05you

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