The Central Bank of Nigeria (CBN) has foreclosed the possibility of adopting a clean float foreign exchange management approach as long as the supply shock remains.
It, however, promised to continue to engage relevant stakeholders, including the International Monetary Fund (IMF) and the World Bank on best approaches to stabilising the market.
The assurance comes as the Bretton Woods institutions intensified pressure on the country to embark on sweeping foreign exchange reforms, including adopting a market-led management approach.
But CBN maintained it would continue with a managed float approach, as Nigeria cannot afford to abandon the local currency to the vagaries of market forces.
Speaking, yesterday, on the sidelines of the 2022 Spring Meetings of the IMF and World Bank, holding in Washington DC, United States, CBN Governor, Godwin Emefiele, insisted Nigeria cannot bear the repercussion of floating the naira completely. The session was monitored by The Guardian.
“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.
Emefiele said the managed float, which allows the CBN to intervene in the market when there is a supply shock, would be in place as long as supply exceeds demand. He said the CBN wants to ensure that the production of excluded items is deepened before the current policy, which “they do not like” is reversed.
Emefiele appreciated the support of the IMF, especially through special drawing rights (SDR) and advisory but insisted the CBN would lean heavily on “homegrown” solutions as advised by the Fund during its 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.”
Emefiele said Nigeria would surpass the IMF growth projection for Nigeria. In its recent World Economic Outlook, the Fund raised the country’s prospect by 0.7 percentage points to 3.4 per cent on the account of the bullish oil market.