Should the Central Bank of Nigeria expand on its core mandate?

The traditional core mandate of a central bank, often referred to as “inflation targeting” by modern economists, is to maintain price stability. Advanced economies like the US, UK, EU, and Japan have established explicit inflation targets around 2%. However, for developing economies like Nigeria, adopting a rigid target may not be the most effective approach.

Beyond price stability, central banks also have responsibilities for financial stability and macroeconomic stability. The former involves ensuring the soundness of the financial system through regulatory oversight, while the latter involves influencing key macroeconomic indicators to achieve desired outcomes.

While some economists advocate for central banks to adhere to their orthodox role of inflation targeting, others argue for a more proactive role in promoting economic growth and development. This debate is particularly relevant in Nigeria, where the current CBN Governor, Mr. Olayemi Cardoso, has signalled a shift from the interventionist approach of his predecessor, Mr. Godwin Emefiele.

Emefiele’s CBN directly intervened in sectors like agriculture, aviation, mining, and power, injecting billions of Naira. Proponents of this approach highlight the potential for these sectors to diversify Nigeria’s economy beyond oil dependence, create employment, and enhance food security. They point to successes like increased rice production, which reduced reliance on imports. They argue that the CBN had to intervene in the absence of effective policies from other actors.

However, critics argue that these interventions have been riddled with problems like loan repayment issues (e.g., Anchor Borrowers’ Programme), blurring of the CBN’s role as lender of last resort, and exaggerated or unfulfilled gains. They point to sectors like power and aviation where interventions haven’t yielded significant results.