Central Bank of Nigeria, CBN, rose from its Monetary Policy Committee, MPC, meeting on May 23 and 24, after a thorough analysis of the challenging global and domestic economic and financial conditions, to announce the adoption of a greater flexibility in exchange rate policy to “restore the automatic adjustment properties of the exchange rate.” In arriving at this conclusion, the apex bank had also considered the short-to medium-term prospects for the domestic economy and the outlook for the rest of the year. It did not give a specific timeframe when the policy would be made known to the public, but market analysts had reasoned that the announcement would come within days due to its importance to market stability.
However, more than two weeks after the pronouncement was made, market players are still waiting with no clear idea of when the guidelines would be made public. This has inadvertently created uncertainty in the forex market, giving room for speculative trading, and at worst, outright hording of dollars, fueling the naira to trade 365 to the dollar. It is obvious that the apex bank is faced with the dilemma of how to hold on to the current reserves level of about $28 billion and maintain price stability in the foreign exchange market in the face of dwindling oil receipts. But this myriad of challenges have not in any way swayed the now distrust public who are worried that such weighty pronouncement could be made without clear guideline on its operation.
Again, one of the challenges confronting the apex bank has been the great difficulties being experienced in funding the nation’s imports as a result of scarce foreign exchange. This situation has put heavy pressure on the naira, sending it on a free-fall. It is imperative for the CBN to come up with a workable solution that would open up the forex market while maintaining a robust forex reserve.
However, there seems to be light at the end of the tunnel, as an analysts say the forex guideline may be out sooner than expected, after two weeks of intensive consultations with major stakeholders, including investors, bankers, fund managers and money market operators in a bid to strike an equilibrium and produce a workable policy that will bring price stability to the naira.
The head of United Bank for Africa, UBA, Phillips Oduoza had said on Thursday, after chief executives of the country’s lenders met with CBN officials, that details of the federal government’s flexible currency model as explained by the apex bank would be ready in a “short while.”
Oduoza told reporters after the bankers committee meeting that the CBN had received lots of input from stakeholders which were being studied with a view to creating a robust flexible exchange rate model. “We want to make sure that we come up with a model that is very robust and comprehensive, that would be able to address the major exchange rate issues that we have been dealing with. To this extent, we have got a lot of inputs from various stakeholders. I believe that in a very short while the framework is going to be ready. We believe it is important to get it right…So you must exercise a little bit of patience but we are coming up with a framework that will address a lot of the issues that surround the foreign exchange in Nigeria,” he said.
When the CBN announced last month plans to abandon the naira’s 15-month peg to the dollar, it was applauded by many due partly to the distortion the old policy had introduced into the forex market. Indeed, market analysts have maintained that the apex bank through its monetary policies has overvalued the Nigerian currency, harmed investments and caused the economy to contract.
We urge the apex bank to, as a matter of urgency, clarify how the new policy would work, because its continuous delay in doing so is spooking foreign investors long worried about getting caught in the middle of a currency devaluation. It is common knowledge, especially among market players, that uncertainty in whatever variant does not augur well for the system. It is on this note that we call on the CBN to do the needful in order to prevent further draining of the country’s scarce foreign reserves and bleeding of the economy, which depends largely on imports.