Since the global economic and financial crises jolted the world economy in 2008/9, the importance of central bank communication, especially the communication of monetary policy, has continued to receive attention among central bankers and researchers. With interest rates almost at zero level and the introduction of unconventional measures like quantitative easing, central banks, especially the major ones – the Federal Reserve System (FED), European Central Bank (ECB) and the Bank of England (BOE), stepped up the explanations of their policy actions and decisions. The rationale for intensifying their talks was to ensure that expectations of economic agents were well managed. When expectations are appropriately gauged, monetary policy becomes predictable and more effective, thereby resulting in improved central bank credibility.
As a former chairman of the Federal Reserve System Ben Bernanke puts it, ‘Clear central bank communication increases the near-term predictability of monetary policy which reduces the risk and volatility in financial markets and allows for smoother adjustment of the economy to rate changes’.
Referred to by some analysts as Open Mouth Operation, central bank communication has been recognized as a policy tool outside the traditional channels of monetary policy since the financial crisis. Prior to this period, central bank activities and operations were shrouded in secrecy and taking the public, especially financial markets by surprise was the fashion. Although central bank transparency had been boosted by the granting of independence and autonomy to central banks, the demand for accountability in democratic societies and the introduction of the inflation-targeting regime, it was the global financial crisis of 2008/9 that reinforced the need for more transparency through effectual communication. Monetary policy communication has improved globally and it is gratifying to note that the Central Bank of Nigeria (CBN) has not been left out of this move away from the Esoteric Art of monetary policy. Whether the CBN communication and the different channels of broadcasting have been effective is however a matter of empirical investigation.
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Communication by central banks generally dwell on informing the public about the objectives and goals of monetary policy, monetary policy decisions and reasons for such choices, the assessment of the economy and sometimes projections and forecasts of key macroeconomic variables. In 2018, the CBN will need to ensure clear and consistent communication of its monetary policy decisions as well as its periodic assessment of the economy. The major communication channels for the dissemination of monetary policy decisions by the CBN are the press conference which holds immediately after the Monetary Policy Committee (MPC) meeting and the issuing of policy communique. While it is not certain the extent to which the public in general and financial market players, in particular, make use of the policy communique, the press conference and the ensuing question and answer session provide a very important platform for explaining and clarifying reasons for monetary policy decisions. This is particularly important if the public rely on the media to transmit outcomes of monetary policy meetings.
The monetary policy committee will in 2018 be mindful of the expected fiscal expansion usually associated with election periods. Although actual elections will hold in 2019, the politicking and lobbying for support which begins this year will be accompanied by huge spending by the politicians. It will also be interesting to observe the intensity with which the CBN will talk about fiscal policy and the implications going into the election year. Though the CBN has operational independence, there were instances in the past where cold feet were developed as the inflation-bias politicians politicize the actions and/or inactions of the CBN.
Also, it will be curious to see if the CBN will maintain its hitherto neutral stance or trade-off price and exchange rate stability for growth-enhancing posture by cutting interest rate this year. The politicians will obviously welcome monetary easing as this will boost liquidity and spending and also put pressure on the exchange rate. The depreciation of the national currency will mean more money in the pocket of the politicians when allocations are made from the Federation Account. However, any shift in policy stance must be backed by fundamentals otherwise the CBN’s credibility will be impaired and investors, both local and foreign, will adjust their investment positions, especially portfolio investment.
The year 2018 will no doubt be an interesting and challenging one for the monetary policy committee, especially as some of the members will be new on the job even though they are individuals with proven track records. The Committee by law is made up of 12 members comprising the CBN Governor and the four deputy governors while three members are nominated by the President and another three by the CBN Governor. The final member is the representative of the Ministry of Finance (usually the Permanent Secretary) who sits on the board of the CBN. In 2017 the Committee did not have a full house in any of its meetings as 10 members attended the January and March meetings while eight were present during the May and July gatherings. The September meeting was attended by only seven members while nine members appeared at the November meeting. Even though the meetings held on the six occasions because a quorum was formed, it is important to stress that because the MPC takes decisions that affect the whole country, efforts should be made (except in the compelling case of ill-health) to ensure that all members attend meetings as this will enhance the quality of deliberations and the eventual outcomes. Regrettably, politics and politicking have delayed the screening and clearance of the would-be MPC members since their names were sent by the President for confirmation in October 2017.
