MPC Rejects Atiku’s Free-Floating Policy Advise – The Central Bank of Nigeria (CBN) has rejected the suggestions by the People’s Democratic Party (PDP) flagbearer in the 2019 presidential elections, Atiku Abubakar.
Atiku had said he would jettison the current monetary policy to stabilize the market and strengthen the economy, once elected into office.
Since July 2016, the CBN adopted the monetary policy that encouraged it to tighten the liquidity supply in the economy to stabilize the exchange rate and strengthen the economy.
The policy involved increasing the Cash Reserve Ratio (CRR) on public sector deposit as well as the controlling monetary policy rate (MPR).
From 12 percent in June 2016, the MPR, along with the CRR and liquidity ratio, remained unchanged at 14 percent, 22.5 percent, and 30 percent consecutively in the last 31 months.
While the MPR is the rate the CBN lends to commercial banks, the CRR is the quantum of funds kept with the CBN by a commercial bank as reserves. Liquidity ratio is the level of currency supply allowable in the market.
Speaking recently in an interview with The Africa Report, Mr. Abubakar said he would explore the option of free-floating the naira if elected President next month.
The current foreign exchange policy by CBN is the best, not total control and not total free floating. The moment the naira is free floated, the price of things are going up, whats Atiku plan ? Egypt borrowed from IMF, will he borrow too?
Mr. Abubakar said the policy will allow the free market to determine the value and exchange rate of the naira in the country.
“I would prefer to float the naira because I believe that will bring about a more stable exchange rate. Therefore, foreign investors are more likely to return to Nigeria and invest as much as possible,” he said.
“The country experienced currency crisis, capital flight and we saw a situation where the exchange rates, even in the black market had moved up in February to N525 to the dollar, and I was being told that by March it will hit up to N1,000. God knows what it could have risen to by April or May of 2017.”
Following the first meeting for 2019 of the Monetary Policy Committee (MPC), during the media briefing in Abuja, a journalist sought the reaction of the CBN governor, Godwin Emefiele, to Mr. Abubakar’s suggestion.
Mr. Emefiele, who faulted the PDP presidential candidate’s criticism of the CBN’s monetary and foreign exchange policies, dismissed insinuations about the existence of a capital control regime in the country.
“First, let me say, there is no capital control regime in Nigeria today because you cannot find the CBN’s hands trying to intervene in the demand and supply of foreign exchange market in the country,” he said.
During the MPC meeting, he said members sought the review of the issue to establish whether there was any merit in the call for CBN to look at ‘free-floating’ the national currency or allow free imports of goods that can be produced locally in Nigeria.
“The MPC came to a conclusion this was a wrong premise. We cannot be talking about allowing imports of items that can be produced in-country today, exporting jobs from Nigeria to foreign countries, and we say we have the interest of Nigeria at heart.
“We do not agree with anybody on that. It is a wrong premise to say he (Atiku) will allow imports to just flood the country just because he wants to please anybody. That is not in the country’s interest.
“We (the CBN) are apolitical. We will remain apolitical. We do not want anybody to drag the Central Bank into issues that are within our realm of interest, otherwise, we will respond to it,” Mr. Emefiele said.
On free-floating of the currency market, the CBN governor said the MPC resolved it was equally a wrong premise, because “it is as good as saying the country should go back to the era of structural adjustment programme in Nigeria”.
“The implication can better be imagined. It will certainly lead to capital flight, massive depreciation and devaluation of the Nigerian currency, and ultimately lead to a currency crisis in Nigeria. We should all know that it is the route to perdition to ever go in that direction (free-floating).”