Nigeria: It Will Be Road to Perdition to Free-Float Naira, Imports - CBN

Nigeria naira
23 January 2019

The Central Bank of Nigeria (CBN) has replied critics advocating for a free-float of the naira and lifting of restriction of forex on 41 banned items, saying allowing that is a sure road to perdition.

Recently, the presidential flag bearer of the PDP, Atiku Abubakar, had said restricting float of the naira by the CBN and the forex restrictions on 41 banned items were bad for the economy. The candidate pledged to reverse the trend if elected.

But reacting to the matter based on a question from a journalist after reading the communiqué of the January 2019 Monetary Policy Committee (MPC) meeting in Abuja, yesterday, CBN Governor Godwin Emefiele said whilst the CBN is apolitical, it believes firmly in the path it has taken for the Nigerian economy is better for it.

He also explained that there is no capital control in Nigeria today and the CBN didn't intervene in the market demand and supply of forex.

"The CBN is apolitical. It's not about criticising but reassessing our position. Is there any merit in free-floating our currency? Or allowing free imports of goods that can be produced in Nigeria? The MPC concluded it was a wrong premise. We cannot be talking about import of items that can be produced in Nigeria today and exporting jobs and saying we have the interest of Nigeria at heart.

"We don't agree with anybody on this. It's a wrong premise to allow free imports because you want to please people; we won't do that," the CBN governor said.

"Allowing a free float is going back to the days of structural adjustment programme (SAP) and the implication can be better imagined. It will lead to capital flight, depreciation of our currency and currency crisis in Nigeria. We should all know that it's a road to perdition," Mr. Emefiele noted.

He further explained that the forex restriction on some items was affecting the economy positively as the importation of those items had dropped, adding that the CBN might soon extend the policy to all food items that could be produced in Nigeria.

"The CBN will be more aggressive to see that all food items that can be produced in Nigeria and consumed in Nigeria that are currently being imported into Nigeria are placed on the forex restriction list. That means you cannot source forex from Nigeria's foreign exchange market to import them. But you can import them from your free dollars," he said.

"This is because we think the initiative that the CBN has put in place to cut imports and diversify the structure of Nigeria's economy is yielding results. We also went further to say that the economic intelligence department of the CBN and the EFCC would investigate any company and individual suspected to have imported those items through other means like smuggling for money laundering and economic sabotage.

"If we discover conclusively that these companies and individuals have been involved in bringing the items in through money laundering, we will blacklist those companies and the individuals and they can no longer operate any bank account in any Nigerian bank. We won't prosecute you but you won't do business in Nigeria. You know what that means," he stated.

Meanwhile, MPC still kept all parameters constant because of the observed risk confronting the economy, including the global and domestic inflationary pressures, which have intensified the risk of currency depreciation.

The CBN also said in spite of the forthcoming elections, investors are still showing interest in Nigeria's economy which shows confidence.

"As a result of the confidence in the management of the forex market and the country, we have seen confidence in foreign investors returning. As at the close of work on Monday our foreign reserve stood at $43.28bn," he said.

On external borrowing, the committee noted the increase in the debt level, and advised for caution, noting that it could fast be approaching the pre-2005 Paris Club exit level.

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) announced its decision to maintain rates at the current levels after a two-day meeting which ended yesterday.

The MPC's decision is in line with the view of FSDH Research titled 'Keeping Policy Rates at Current Levels is Still Prudent'.

According to the analysts, in order to address the ensuing risks to possible increase in inflation rate in Nigeria and the weak exchange rate, FSDH Research believed the CBN will continue to use the sales of government securities to influence interest rates and yields.

"Therefore we expect the yields on fixed income securities to increase marginally from the current levels in the coming weeks," they added.

Lukman Otunuga, research analyst at FXTM, while commenting on the MPC and the IMF outlook said: "A number of experts have suggested that signs of rising inflationary pressures are likely to fuel speculation over the central bank's tightening monetary policy, especially as government spending increases ahead of the presidential elections.

However, with the IMF lowering Nigeria's growth projection for 2019 to 2% due to a change in oil's outlook and weakening global expansion, the CBN may now be in a tricky position, he said.

While a rate hike will tame inflationary pressures, it may end up impacting growth by discouraging consumer borrowing and businesses to reduce investments.

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