THE Central Bank of Nigeria (CBN) has ruled out adopting a clean float foreign exchange management strategy as long as the supply shock persists.
It did commit, however, to continue engaging important parties, such as the International Monetary Fund (IMF) and the World Bank, on the best measures to market stabilization.
The promise comes as the Bretton Woods institutions stepped up their pressure on the country to implement broad foreign exchange reforms, including a market-led approach to management.
However, the CBN stated that it would continue to use a managed float strategy since Nigeria cannot afford to leave its currency to the whims of market forces.
CBN Governor Godwin Emefiele, speaking on the sidelines of the IMF and World Bank Spring Meetings in Washington, DC, yesterday, emphasized that Nigeria could not face the consequences of fully floating the naira.
“They want us to free the exchange rate. And you do know that this has some impacts on the exchange rate itself. When you allow that to happen, you will have an uncontrollable spiral on the naira. But what managed float means is that we have some measures in place to help control the spiral,” the governor said.
The managed float, which permits the CBN to interfere in the market in the event of a supply shock, would remain in place, according to Emefiele, as long as supply exceeds demand. He stated that the CBN wants to ensure that the production of prohibited commodities is increased before the current policy which “they do not like” is overturned.
Emefiele thanked the IMF for its assistance, particularly through SDRs and advice services, but maintained that the CBN will rely mainly on “homegrown” solutions as recommended by the Fund during meetings with national economic managers and central banks.
He said: “Our resolutions at the IMF have always suggested that governors should go back to their countries and think of homegrown solutions. Nigeria’s situation is very peculiar, and that is the reason we have always called on the IMF to show understanding. It has, indeed, shown understanding.
“The IMF and World Bank provide advice that we work with. But even at some of our private meetings, we realise that there are challenges, leading us to adopt homegrown solutions to address them. We cannot adopt what is being proposed; we cannot adopt a free float of our currency. With the reduction of forex for rice or maize, demand will drop. As it drops, we can adjust the exchange rate. We will continue to engage the IMF and World Bank.”
Nigeria, according to Emefiele, would outperform the IMF’s growth forecast. The Fund upgraded the country’s prospects by 0.7 percentage points to 3.4 percent in its most recent World Economic Outlook, citing the optimistic oil market.
Comments are closed.