Why we can’t allow Naira float freely against other currencies – Emefiele
The Central Bank of Nigeria (CBN) vowed on Saturday to sustain its policy of defending the naira against world currencies for the next five years.
It said the policy is backed by the CBN Act.
Speaking at a Consultative Roundtable with the CBN Governor tagged: ‘Going for Growth’ held in Lagos, Governor of the apex bank, Mr. Godwin Emefiele, said the CBN would be disobeying the law by allowing the naira to float freely.
A flexible exchange rate, according to him, would not favour the poor.
“I am committed to protecting the naira. We cannot allow the naira to float freely,” he said.
Emefiele told his audience which included Governor Babajide Sanwo-Olu of Lagos State, Chairman Dangote Group, Alhaji Aliko Dangote, Zenith Bank Chairman, Jim Ovia, founder and Chairman of Honeywell Group, Oba Otudeko, one time Lagos State Commissioner of Finance, Wale Edun, Board Member, Standard Bank Group, Ateto Peterside, among others that the apex bank’s goal in participating in the roundtable session was to generate valuable insights from key stakeholders on the role Monetary Policy authorities could play in formulating and implementing policy measures that will support improved economic growth, as well as the creation of jobs in Nigeria both in the near and long run.
He said it would be difficult to achieve a low interest rate regime, a stable exchange rate regime and robust reserve position , a low inflationary environment, and an environment of full employment at the same time.
He said:”In fact, I love these and would have less stress in monetary policy if all these are possible. But the question we should ask ourselves at this session is, in the Nigeria of today, are these all possible at the same time?
“Put succinctly, we have watched some so-called economic and financial analysts through televisions and others through the newspapers say that ‘to grow the economy and create jobs, the CBN must allow exchange rate to free float, and also allow inflation to rise; while at the same time allowing interest rates to come down.’
“We have also curiously observed that these analysts have often reached different conclusions from those of the CBN. Again, I am not surprised at these views because most have done so with shockingly limited or outright incorrect information.
“For example, we have watched some armchair analysts demand that the CBN stop ‘defending’ the Naira and simply allow market forces to determine the exchange rate. These analysts simply call for the Naira to be floated. To these analysts, let me remind them that the CBN Act demands that we ‘defend’ the Naira using the foreign exchange reserves. In setting out the five principal mandates of the CBN, Section 2, Subsection C of the CBN Act 2007 reads and I quote “…maintain external reserves to safeguard the international value of the legal tender currency”.
“In effect, the CBN would be disobeying the law establishing it, if it sits idly by and allow the Naira to be determined wholly by the so-called market forces.”
Continuing, Emefiele said those calling for floating of the currency betray their ignorance of the effects of significant depreciation, however short-lived, on inflation.
He said several empirical analyses have shown that the pass-through of changes in the exchange rate on consumer prices is almost one-to-one. This implies that for every percentage point depreciation in the Naira, there is almost the same rise in inflation.
Emefiele said productivity growth in these sectors are badly needed to insulate the economy from volatilities in the crude oil market and help in creating jobs on a mass scale, given Nigeria’s large and growing population.
He said the CBN had, in the last five years, taken a number of measures to support the growth of the economy and these have helped in achieving the Macroeconomic stability seen today with inflation trending down to 11.37 per cent from 18.72 in January 2017 as well as exchange rate stability at current levels with considerable convergence and reserves build up to current level of over $45 billion compared to $23 billion in October 2016.
“Although we had hoped to achieve a lower level of interest rate, this became impossible given the normalization of Monetary Policy in the United States and the over 60 per cent drop in crude oil prices between 2014 and 2016. You will agree with me that the consequences of these unfortunate occurrences was a heightened inflationary pressure on the economy and Monetary policy had no option but to embark on a regime of tightening so as to rein inflation,” Emefiele said.
He also said that the CBN people suggest that all they want is for the CBN to reduce interest rates.
Also speaking, Gov Sanwo-Olu said that Lagos State contributes 30 per cent to Nigeria’s Gross Domestic Product (GDP) adding that the state will need to invest more in priority areas such as health, education, affordable housing and also make the local economy to be competitive.
He advised the CBN to support export growth to make Naira competitive and stable. He urged the CBN to play its part in supporting the economy.
Dangote said that policy implementation is key in achieving economic growth. He said that without power, it will be difficult to achieve desired growth in the economy. He said that the country has been struggling for the past 18 years without solving the power challenge, which has remained a major challenge facing the private sector.
He said that the Dangote Refinery is expected to generate N9trillion in revenue when it begins operation. He also spoke against smuggling, adding that Benin Republic is making it difficult for Nigeria to tackle the activities of smugglers. According to him: “There is no country that will survive with a neighbour like Benin Republic.”
Also speaking on the activities of smugglers, Emefiele said the CBN has already identified business owners that are involved in smuggling and will blacklist and stop them from operating bank accounts in Nigeria.