The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has adopted a flexible exchange rate policy for the country.
The CBN Governor, Mr Godwin Emefiele, disclosed this on Tuesday in Abuja while addressing newsmen on the outcome of the two-day meeting of MPC.
He said with the directive, the apex bank would soon release a new guideline on the management of foreign exchange in the country.
Emefiele said that when finally released, the apex bank would retain a small window for critical transactions.
He cited the critical transactions as the importation of vital machinery for production and basic raw materials critical for manufacturing which by their nature could not be sourced locally.
CBN had been under pressure over the last few months to either devalue the Naira or adopt a flexible exchange rate policy.
Emefiele said following the recent depreciation of the country’s foreign exchange, time had now come for the bank to introduce greater flexibility in the management of foreign exchange.
He said all the members of the committee voted unanimously to introduce greater flexibility in the inter-bank foreign exchange market structure and to retain a small window for critical transactions.
He said while the country awaited the new policy to be unveiled, the CBN would only fund critical transactions as the apex bank did not have enough foreign exchange to meet all the demand of all foreign exchange users.
“The committee is aware that a dynamic foreign exchange management framework that guarantees flexibility could not replace the imperative for the economy to increase its stock of foreign exchange through enhanced export earnings.
“Consequently, such a structure must evolve to provide basis for radically improved investment climate to attract new investments.
“The committee recognises the exchange rate as a very important macroeconomic variable, which must be earned by increased productive activity and exports.
“Accordingly, the MPC decided that the bank should embrace some level of flexibility in the foreign exchange market.
“Given the imperative for growth, the management of the bank has been given the mandate to work out the modalities for achieving the desired flexibility that is in the overall interest of the Nigerian economy.
“The committee, in its assessment of the relevant risk profiles, came to the conclusion that although the balance of risks remains tilted against growth, previous decisions need time to crystalise,’’ he said.
Emefiele added that those who desired foreign exchange should seek for it at the autonomous sources.
The governor also ruled out the possibility of the CBN providing foreign exchange to fund the operations of the Bureau De Change under the new foreign exchange rate policy.
Also Emefiele said the MPC decided to retain the Monetary Policy Rate at 12 per cent, while also retaining the Cash Reserve Requirement at 22.5 per cent.
The Liquidity Ratio was also retained at the current rate of 30 per cent.
On the negative Gross Domestic Product Growth rate recorded in the first quarter of 2016, Emefiele said the delay in passage of the 2016 budget was a major factor.
“Owing to the delayed budgetary passage in May 2016, the initial monetary injection approved by the Federal Government may not impact the economy soon.”
“For instance, the processes involved in finalising procurement contracts by agencies of government before the disbursement of funds may further delay the much needed financial stimulus to restart the growth.”
On the recent deregulation of the downstream sector of the oil industry, the committee, according to the CBN boss, believed that the move was in the right direction and would lead to increased supply.
He, however, cautioned that the pass-through effect of prices to other products had to be considered when taking such policy decision.
Mindful of the limitations of monetary policy in influencing structural imbalances in the economy, Emefiele said the committee stressed the need for policy coordination with the fiscal authorities.
This, he added, would assist in addressing the identified pressure points from the deregulation exercise.
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