AFTER delaying the move for many years, the National Assembly finally voted to pass the amendments to the State Bank Act that had been languishing for at least three years.

The amendments seek to create a more independent decision-making process at the central bank, especially regarding monetary policy.

The regulatory framework has also been strengthened by giving legal cover to any interventions that might be needed to come to the aid of a scheduled bank facing liquidity issues.

The biggest change the amendment has brought about is the creation of the Monetary Policy Committee, which has been empowered to “formulate, support and recommend the monetary policy” as well as to “approve and issue the monetary policy statement”.

These powers used to vest in the executive board, but following notification amendments to the law, they will pass to the MPC instead.

The passage of the amendment is an important step, long in the making, but whether or not it will bring about greater autonomous action on the part of the State Bank remains to be seen. The government’s influence over the bank’s decision-making powers has been considerable.

One of the principal conduits through which this influence was exercised was the presence of the secretary finance on the board, giving the federal government an important seat at the table where decisions that impact the cost at which it can borrow are made.

The MPC’s constitution does not specify a seat for Q block, but three of its members are to be nominated from the board, which could well include the secretary finance.

The amendment is also silent on the matter of publication of the MPC’s minutes, which has been flagged as an important ingredient of the legislation by the IMF.

Greater transparency is essential, and if the legislation does not specifically call for publication of the MPC’s minutes, the board should certainly require it when they formulate the rules under which the new committee will operate.

We can now look forward to the notification of the law, and the names that are nominated to the MPC, which will give us an early clue to how far the State Bank’s autonomy is really envisioned to go. But the real test will be when we all get a chance to read the first monetary policy statement put out by the new MPC, and see if and how it differs from those that the bank has been issuing thus far.

Published in Dawn, November 11th, 2015