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Any Paradign Shift in the Communication Strategy of the New CBN Governor? -

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Friday, June 13, 2014 11.52 PM / Preston Consults

     •          Importance of Central Bank Communication.
     •         Central Bank communication and Inflation volatility.
     •         Lessons for the new CBN Governor


The appointment of Mr. Godwin Emefiele makes him the 11th Governor of the Central Bank of Nigeria, having resumed office on June 3rd 2014. He has indicated clearly that he wants to ‘create a central bank that is professional, apolitical and people-focused’. Above all, he desires a ‘Central Bank that will build a financial system capable of catalyzing economic growth and development’. While his maiden speech has elicited reactions from stakeholders, this brief refrains from commenting on the substance of the speech as this will be done in subsequent editions.

The focus now is to bring to the fore the importance of ‘Central Bank Communication’ (CBC) and how this will play out if the new CBN Governor is to achieve his desired goals. The manner in which central banks communicate to the public determines the level of transparency and credibility of monetary policy and this has been supported by empirical studies. For example, Sanusi (2012) concluded that an important aspect of central bank communication is that it ‘creates news and raises the signal-to-noise ratio by eliminating guessing on the part of the public’. Similarly, Cukierman (2001) posited that communication clarifies public concerns about instruments and goals of monetary policy and underlying reasons for monetary decisions are better understood.

In light of the above, Mr. Emefiele must get his communications strategy right ab initio. He, as well as other members of the monetary policy committee must say the right things at the right time and for the right reasons. This will send the right signals and reduce ‘noises’ that may distort markets operations. Therefore this brief highlights the importance of CBC and the likelihood of a paradigm shift under Mr. Emefiele.

How did Mr. Emefiele’s last three predecessors Communicate?
A study by Ekor et al. (2013) provided an insight into how the last three predecessors of Governor Emefiele (Sanusi Lamido Sanusi, Chukwuma Soludo and Joseph Sanusi) communicated their views on the economy as a whole and monetary policy in particular. The study classified the Central Bank Governors’ speeches into ‘monetary policy related’, ‘economy related’ and ‘others’. Monetary policy related speeches are those that focus mainly on exchange rate, interest rate and inflation while the ‘economy related’ ones are those that dwell on economic growth and development, poverty reduction, small and medium scale businesses, etc., ‘Others’ are those that are neither directly related to monetary policy or the economy.

Table 1 and Figure 1 show that Mr. Emefiele’s immediate predecessor, Mallam Sanusi L. Sanusi made a total of 19 speeches and presentations before leaving office on February 24th 2014. These speeches and presentations which were obtained from the website of the CBN show that none of the speeches and presentations of Mallam Sanusi L. Sanusi were directly related to monetary policy because 18 (94.7%) were economy related and one (6.2%) categorized as ‘others’. This however appears puzzling given that a lot happened during the era of Mallam Sanusi with respect to macroeconomic stability. Also, Mallam Sanusi may have given speeches and presentations that are directly linked to monetary policy, but which are not available on the CBN website.

Professor Chukwuma Soludo delivered a total of 47 speeches and presentations during his reign at the helm of the CBN of which 11 (23.4%) were directly related to monetary policy while 35 (74.5%) were economy related and one (2.1%) classified as ‘others’. Mr. Joseph Sanusi who headed the CBN between May 1999 and May 2004, made a total of 81 speeches with 15 (18.5%) classified as monetary policy related while 29 (35.8%) were economy related and 37 (45.7%) classified as ‘others’.

Did Joseph Sanusi, Chukwuma Soludo and Sanusi L. Sanusi’s communications strategy help  tame inflation?
Given that the percentage of speeches and presentations by Professor Chukwuma Soludo was higher than that of Joseph Sanusi and Sanusi Lamido Sanusi, the hunch should be that inflation volatility would be lower in his era. However, using standard deviation as a measure of volatility, it can be seen that inflation volatility was 5.56 during the era of Professor Soludo as shown in Figure 2. While this volatility level is lower than the 6.96 recorded in Joseph Sanusi’s era, it is higher than the 1.72 observed during the reign of Sanusi Lamido Sanusi. Nevertheless, it is important to stress that the CBN has made significant progress in the last 15 years given that inflation volatility was 25.52 before 1999 when Joseph Sanusi was appointed.

Although the CBN has over the years applied a combination of policy instruments to contain inflation, the improvement in communicating these measures has resulted in greater awareness and rein-in of bullish inflation expectations

Why was inflation volatility lower during the era of Sanusi Lamido Sanusi
In 2011 and under the leadership of Sanusi Lamido Sanusi, the CBN took a significant step in line with global best practices by releasing monetary policy committee (MPC) members’ personal statements and voting patterns alongside the communiqués. This brought greater awareness with respect to monetary policy decisions in Nigeria as the public was able to study the communiqués as well as the sentiments of the Committee members and their voting patterns.

Figure 3 shows the breakdown of the voting pattern of the MPC members for the whole of 2013 and January 2014 which was the last meeting chaired by Sanusi Lamido Sanusi. The import of having the members’ statements and voting pattern made public, unlike the pre-Lamido Sanusi era is that it helped markets gauge policy direction. For example, the fact that a minority of the members favored interest rate cut during the period gave the markets a reasonably good idea that majority of the Committee members will more often than not vote in favor the restrictive stance of the CBN during the period.

Note: The MPC is statutorily made up of 12 members. The 14 members reflected in Figure 3 is due to some member’s term ending and their places taken by new members. Also, while the aggregate voting pattern was given for the MPC meeting of November 2013, there was no breakdown of how individual members voted. Thus, Figure 3 does not reflect how the MPC members voted in that meeting.

What should Mr. Emefiele do differently?
The CBN has made steady progress with respect to communicating its policy decisions and this has enhanced policy transparency and credibility. Mr. Emefiele does not need to re-invent the wheel; however, a few suggestions will suffice:

1. There should be a balance in his speeches and presentations between ‘monetary policy related’ and ‘economy related’ issues. This will help pass across his key message of how the CBN hopes to achieve and sustain price stability while also providing information on how the apex bank is supporting the growth and development policies of the Federal Government.

2. Mr. Emefiele should be visible in key business seminars and lectures where captains of industries and executive officers are usually present. His experience as a former leader of one of Nigeria’s leading commercial banks would be useful in this regard.

3. He should be clear and unambiguous on his ‘policy’ goals. This will put paid to the perceived notion that ‘policy’ may be relegated for ‘regulation’.

4. It is important to ask the question: How many of the monetary policy committee members are known to the public including students in economics and business schools? In advanced countries, most members of the monetary policy committee are usually guests of business communities and schools. They use such occasions to express their views on the economy at large and monetary policy in particular. Mr. Emefiele may, therefore, want to encourage members of the monetary policy committee to improve on their participation at key business seminars and conferences as well as take out time to give talks at business and economic schools across the country and internationally.

·    Blinder, A., Ehrmann, M., Fratzscher, M, De Haan, J., and Jansen, D. (2008) ‘Central bank communication and monetary policy: A survey of theory and evidence’ CEPS Working Paper No. 161

·       Cukierman, A. (2001). ‘Are contemporary central banks transparent about economic models and objectives and what difference does it make? Bundesbank Discussion Paper 05/01.

·    Ekor, M., Saka, J. and Adeniyi, O. (2013) ‘Central Bank Communication and Monetary Policy Effectiveness: Evidence from Nigeria, West African Journal of Monetary and Economic Integration.

·          Ekor, M., Saka, J. and Adeniyi, O (2014) ‘Monetary Policy Committee and Monetary Policy Conduct in Nigeria - A Preliminary Investigation’, Journal of Economics and Sustainable Development, Vol. 5, No. 3, pp. 132-144

·          Emefiele, G. (2014) ‘Entrenching Macroeconomic Stability and Engineering Economic Development in Nigeria’ Maiden Press Briefing, June 5, 2014

·          Sanusi, A. R. (2012) ‘Signaling effects of monetary policy in Nigeria: Evidence from the new central bank of Nigeria’s communication regime’, Paper presented at the 52nd Annual Conference of the Nigerian Economics Society, September, 2012

About the Author:
Mr Ekor is an Economic analyst and consults for the DFID

* Disclaimer/Advice to Readers:
While the website is checked for accuracy, we are not liable for any incorrect information included. The details of this publication should not be construed as an investment advice by the author/analyst or the publishers/Proshare. Proshare Limited, its employees and analysts accept no liability for any loss arising from the use of this information. All opinions on this page/site constitute the author’s best estimate judgement as of this date and are subject to change without notice. Investors should see the content of this page as one of the factors to consider in making their investment decision. We recommend that you make enquiries based on your own circumstances and, if necessary, take professional advice before entering into transactions. This information is published with the consent of the author(s) for circulation in/to our online investment community in accordance with the terms of usage. Further enquiries should be directed to the author, Preston Consults who can be reached vide Dr. Tochukwu Nwachukwu on


Tags: CBN Governor,  Central Bank,  Mr. Godwin Emefiele,  reston Consults,  Central Bank of Nigeria,  Sanusi Lamido Sanusi,  Chukwuma Soludo,  Joseph Sanusi, 

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