Monetary, FX rate, debt sustainability, African CBN governors seek solution

Deposit money banks and other financial institutions are not finding it easy coping with the global economic slowdown, occasioned by volatility in commodity market, foreign exchange rate challenges, high rate of inflation, monetary policy, inconsistency and other macroeconomic factors.

According to Carlos Lopes, UN Under-Secretary-General and executive secretary of Economic Commission for Africa (ECA), global economic headwinds bring with them increased risks in financial markets.

“Already, we are seeing an unprecedented disconnect between financial and real sectors”, he said at a roundtable meeting of the African Central Bank governors in Addis Ababa, Ethiopia.

Godwin Emefiele, governor of CBN, had at the Monetary Policy Committee (MPC) last month, recounted how external and domestic challenges have persisted, stemming from low commodity prices, troubled financial markets, tepid global demand, policy uncertainty as well as continuously feeble growth in global trade.

In view of these, the African Central Bank governor, held a roundtable dialogue on ‘Monetary and Exchange Rate policy, Debt Sustainability amidst Global Economic Slowdown’, at the African Development Week in Addis Ababa.

The objective of the dialogue was to assess the global economic developments as well as policy responses and impact on macro-economic indicators in Africa.

It was also to evaluate the short-term responses by Central Banks in Africa to macro-economic volatility, resulting from commodity price decline and other global shocks and how these responses should be aligned with medium and long-term development priorities and challenges. The dialogue focused on five key areas including policy directions for monetary and exchange rate policy in African economies, long term debt sustainability, a bond market for long term finance in Africa, building resilience in African economies and transformative financial system.

“We need strong institutions that are going to protect the market biggest challenge in declining oil prices, fiscal challenges, and deal with diversification problems and infrastructure gap”, Njuguna Ndung’u, former governor, Central Bank of Kenya, told Central Bank governors.

According to him, both monetary and exchange rate policies should be used creatively, to allow African countries to generate the large volume of development finance, including external borrowing required for structural transformation.

Emefiele, who was not present at the roundtable meeting with the African Central Bank governors, had last month in Abuja said the Bank had adopted accommodative monetary policy since July 2015 in the hope of addressing growth concerns in the economy, effectively freeing up more funds for deposit money banks by lowering both Cash Reserve Requirement (CRR) and Monetary Policy Rate (MPR), with excess liquidity arising from the lower CRR warehoused at the CBN.

DMBs were to access these funds by submitting verifiable investment proposals in the real sector of the economy.

HOPE MOSES-ASHIKE