Finance ministry, CBN deny move to liberalise forex market
• ‘It is Bloomberg’s interpretation’
• Only CBN is given responsibility to manage FX market, Emefiele insists
• Minister keeps mum as controversy over interference continues
• MPC retains lending rate amidst rising inflation
The Ministry of Finance, Budget and National Planning, yesterday, made a U-turn on the statement credited to the Minister, Mrs. Zainab Ahmed, to the effect that the Federal Government will jettison the Central Bank of Nigeria (CBN)’s official foreign exchange (FX) rate for the Investors’ and Exporters’ (I & E) window rate in its transactions.
The CBN governor, Godwin Emefiele, held on to his gun, describing as false the report attributed to the minister suggesting that the Bank has embraced a flexible exchange rate regime and harmonised the different rates. He insisted the apex bank still maintained managed floating, which allows it intervene in the market occasionally.
He said: “Let me repeat that Nigeria had not changed from its foreign exchange management policy. Nigeria remains on a managed float. What the managed float regime means is that the CBN, being the institution that has the core mandate for forex administration in the country would watch the market and see how the market operates.
“Depending on its reading, it would come from time to time to intervene in the forex market. It might interest us to know that since January, the CBN has not intervened in I & E window. The market had always operated within the band of about N409/$ and at some time it attains N412/$ and goes to N413/$.
That is the way it is supposed to move. Then CBN’s job is to watch and see the movement and from there determine whether or not to intervene to moderate the rate in the market in line with our reading of where we think the exchange rate should be.
“So when Bloomberg begins to conclude statement of the Minister, which I doubt because I have not heard the audio, that we have moved into the flexible exchange regime, I will just try to appeal to members of the press community to seek clarification, particularly from the authority. Section 4(2) of the CBN Act places the authority of forex management on the CBN.”
Emefiele said the country “is deemed not to be practising a multiple currency regime as long as rates vary or ranges around a band that is not more than two per cent below the nominal market rate’. He insisted that the minister did not speak about flexible rates.
The Guardian contacted the minister for clarification on her position. But she neither picked calls nor responded to requests for comments.
However, her Special Assistant on Media, Mr. Yunusa Abdullahi, confirmed that his boss spoke to Bloomberg at the Villa on Monday. But he insisted the minister categorically said the country’s FX market had been fully floated.
Abdullahi forwarded what he said was the minister’s response: “On the concern of WTO on FX, this is work in progress. The CBN is working to be able to control the management of the economy. We have been able to make some progress. If you remember, in 2020, we started with an official price of 305/$. By mid-year, it was adjusted to 360/$ and towards the last quarter of the year, the federation was getting, having inflow and outflow monetised at Nigerian Autonomous Foreign Exchange (NAFEX) rate. So, within the government and the Central Bank, there is only one official rate and that’s the NAFEX rate.”
Bloomberg reported on Monday that Nigeria had adopted a flexible exchange rate policy for official transactions, thus devaluing the naira. The report reverberated in the market triggering positive reactions from financial market stakeholders who have argued that managed float and multiple rate regimes had outlived its usefulness.
“The government will start to use the flexible rate, that has until now applied to investors and exporters, for government transactions too. Within the government and the central bank, there is only one official rate and that is the Nafex rate,” Ahmed, was quoted as saying.
Recently, the Director-General of the World Trade Organisation (WTO), Dr. Ngozi Okonjo-Iweala, said several countries were not happy with Nigeria over the disturbing multiple rate practice.
Experts have argued that uncompetitive FX is scaring capital necessary to stimulate investment and create jobs. Foreign investors who are waiting to repatriate the returns have had their money trapped while fresh inflows have dwindled owing to the wide differential between the official and black market.
The CBN has kept the rate at NAFEX from rising to close up the gap between the two markets, which has become a sore spot for manipulation and below-the-table dealing.
The Guardian had reported that the FX floating and rate harmonization plan announced last year faced enormous political pressure.
Yesterday, a professor of applied economics and advisor to Prof. Charles Soludo when he was CBN governor, Godwin Owoh, said the pressure was real and that the event of the past few months showed that Nigeria’s central banking has been hijacked by politicians.
MEANWHILE, the Monetary Policy Committee, yesterday, retained a monetary rate 11.5 per cent, the cash reserve ratio (CRR) at 27.5 per cent and the liquidity ratio at 30 per cent. The asymmetric corridor was also left at + 100 /- 700 basis points around the monetary policy rate (MPR).
Addressing the media at the end of the MPC Emefiele said: “At this meeting just like in very recent meetings, the MPC had been confronted with a policy dilemma, which is that Nigeria has been facing an 18-month inflationary pressure while at the same time before this meeting we were confronted with a challenge of a contraction, which was stagflation in our view.
“In dealing with these situations, you want to deal with inflationary pressure; you will have to adapt some tight monetary policy measures to rein in inflation. When you adopt tight policy measures, what it does is that it constrains liquidity, makes interest rates high and makes life difficult for those who want to access credit.
“If people cannot access credit, it means they cannot go onto gainful activities that will help stimulate output growth. On one hand, the monetary policy says we have these two challenges which are running in the opposite direction. What you have to do is to loosen to stimulate the economy so that output growth can be stimulated and consumption spending can be stimulated whereas, on the other hand, you have inflationary pressure confronting you. Inflation itself hurts the purchasing power of the people. What you have to do is to stem it by adopting measures to tighten liquidity to rein in inflation.”