For one year, despite overwhelming evidence, the Central Bank of Nigeria (CBN) and President Muhammadu Buhari held on to outdated command and control monetary policies. As things continue to get worse economically for the country, with the economy contracting to 0.6 percent in the first quarter of 2016, the government is now going back on some of the decisions.
A few weeks ago, the price of the pump price of fuel was effectively increased to N145 per litre. And on Tuesday, after the meeting of the Monetary Policy Committee (MPC) of the CBN, the bank announced that it is set to adopt a more flexible approach in the management of the foreign exchange market to avoid an “imminent recession”.
The governor of the CBN, Godwin Emefiele, said that details of the new policy would be released in the coming days. For months, Buhari consistently fought against this move, saying he is yet to be convinced.
“The MPC (Monetary Policy Committee) voted unanimously to adopt a flexible exchange rate policy to restore the automatic adjustment properties of the exchange rate,” Emefiele said. He also said that a small window will be retained “for funding critical transactions”. Basically, this means it is not going to be a full float of the Naira against the dollar, as a fixed rate will be used for the funding of these so called critical transactions.
Emefiele said the new policy would guarantee improved access to foreign exchange for business to boost the economy.
“It is time to introduce greater flexibility in the management of FOREX market,” the CBN governor said. “After assessing the various risk profiles available, the committee resolved to adopt the least risky option by adopting a flexible foreign exchange policy to restore the automatic adjustment properties of the exchange rate.”
During the meeting, monetary policy rate, MPR was retained at 12 per cent; Cash Reserve Ratio, CRR at 22.5 per cent and liquidity ratio at 30 per cent.