Monetary Policy and Oil Price Surges in Nigeria

The management of oil revenues is the past, present and future of macroeconomic policy in Nigeria. As Paul Collier describes (Chapter 2), the long history of fiscal mismanagement of oil booms in Nigeria saw the Central Bank of Nigeria’s ability to pursue a coherent monetary policy severely circumscribed. Without the sup-port of a disciplined and broadly predictable fiscal stance, the Central Bank was unable to make credible commitments to an inflation target or, indeed, to any other intermediate target such as the money supply or the exchange rate. Monetary policy could not reliably anchor inflation expectations. Since the turn of the century, however, the landscape has started to change. Harnessed to a stronger political commitment, the successful consolidation in the financial sector concluded at the end of 2005 and the de facto unification of the foreign exchange markets in early 2006, measures such as the Fiscal Responsibility Bill, currently working its way through the legislature, are laying the foundations for improved fiscal management of oil revenues. As a result, and for possibly the first time in its history, the prospects now exist for genuinely ‘independent’ Central Banking in Nigeria. It now makes sense to consider monetary policy playing a more central role in short-rim macrneconomic management in Nigeria.