Money Market Reporting Training: Day -3
Effective regulation imperative for money markets in W/African sub-region- Economist
.Says toxic assets in Nigeria are over N3trillion
.Says money market instruments are negotiable
.Advises reporters to study monetary policy tools in sub-region
By Udeme Clement (Reporting from Abuja)
As the strategic workshop on money market reporting for financial analysts, organised by West African Institute for Financial and Economic Management (WAIFEM) , in collaboration with African Capacity Building Foundation (ACBF) enters Day-3, economic experts are calling for effective regulation of money markets within the West African sub-region for sustainable growth.
A Professor of Economics, with University of Benin, Mr. Anthony Monye-Emina, made similar assertion, while delivering a lecture on, ‘Money Market Operations’, at the workshop in Abuja.
According to him, “Money market is a section of the financial system of an economy with organisational arrangements for dealing with financial instruments of high liquidity and short term maturities.
Giving more explanation on money market operations, he said, “It is a market for buying and selling of assets with maturity period of one year or less. Therefore, the instruments bought and sold in the money market include treasury bills, commercial papers, certificates of deposit, banker’s acceptances, deposits, bills of exchange, repurchase agreements, federal funds, short-lived mortgage and asset-backed securities. It is important to note that these instruments are negotiable”.
He went on, “The aims of money market include enabling Central Banks to undertake vigorous monetary policy, providing a means for the Central Banks to judge shortage or surplus of funds in the economy, and paving the way for monetary autonomy of a nation as an independent modern state, among many others”.
Prof. Monye-Emina, stated, “The money market of every country is very important because it performs the functions of financing trade/industry and promoting profitable investments to enhance economic growth. As such, operators in the money market include federal/sub-national governments, deposit banks or commercial banks, micro-finance banks, investment banks, provident funds, social security trust fund and pension funds”.
Giving further details on money market operations in an economy, the lecturers said, “This type of market is often controlled with monetary policies”.
His analysis, “The monetary policies are measures designed to regulate the volume, cost availability and direction of money as well as credit in the economy. This also involves the process where a Central Bank controls the cost of credit in an economy. Under this framework, monetary policy is classified into two categories, such as contractionary and expansionary measures”.
“The contractionary category, which is also known as restrictive, is designed to reduce inflation in the economy. This involves selling securities in the open market, in order to reduce the level of liquidity in an economy. On the other hand, expansionary category, which is also known as expansive, targets unemployment in an economy. It is also designed to prevent economic recession. In this aspect, the interest rate is lowered and securities purchased from banks to raise the level of liquidity in the economy.”
The Professor pointed out, “In doing this, what is called monetary policy framework comes into play. This is a strategy the monetary authority utilises in achieving policy objectives. For instance, the Central Bank of Nigeria (CBN), uses monetary policy framework in achieving its policy objectives in the financial sector of Nigeria’s economy. In Nigeria, it includes exchange rate targeting, monetary targeting, interest rate targeting, inflation rate targeting and nominal GDP targeting.”
He added, “It is quite imperative for money market reporters and analysts to understand that there are monetary policy tools in every economy. These tools are in two categories such as quantitative and qualitative. The quantitative tools are traditional market weapons and non-traditional direct instruments. Examples of traditional instruments include Open Market Operations (OMO), cash reserve ratio and liquidity ratio. Therefore, the non-traditional tools include supplementary reserve requirement and special deposit, among other tools. Under qualitative or selective tools, we have moral suasion, selective credit control guidelines, administrative control of interest rate and exchange rate, issuance of stabilisation securities instrument and movement of government accounts”.
Moreso, he revealed that toxic assets in Nigeria’s financial system were estimated at about N3trillion in 2015 fiscal year.
Here is the segment-3 report of this workshop.
Watch out for more reports on the strategic workshop on money market reporting for financial analysts, organised by WAIFEM and ACBF in Abuja.
Stay informed !!!