CBN governor, Godwin Emefiele, while briefing journalists after the two-days Monetary Policy Committee (MPC) meeting, yesterday, said that a more flexible foreign exchange policy would soon become operational in the country and that the apex bank would release a new guideline on the management of foreign exchange in the country within the next few days.
The MPC mandated the CBN to adopt a flexible exchange rate system, to allow an inflow of foreign exchange for needed investment. Emefiele stated that the bank had been under pressure over the last few months to either devalue the Naira or adopt a flexible exchange rate policy and that it was due time for the bank to introduce a greater flexibility in foreign exchange management.
He also said that under the new flexible forex policy, the bank would only retain a small window to enable it fund critical transactions such as importation of vital machinery for production for companies whose basic raw materials are almost entirely locally sourced or that are critical for manufacturing which by their nature cannot be sourced locally.
“The committee noted that it was time to introduce greater flexibility in the foreign exchange market. We re-affirmed commitment towards the maintenance of price regulation. The committee said, during the period of stagflation, the options are very limited and the committee decided on the least risky option. The MPC voted unanimously to adopt a flexible exchange rate policy” said Emefiele
“The Committee recalls that in July 2015, it had hinted at the possibility of the economy falling into recession unless appropriate complementary measures were taken by the monetary and fiscal authorities. Unfortunately, the delayed passage of the 2016 budget constrained the much desired fiscal stimulus, thus edging the economy towards contractionary output”
“As a stop-gap measure, the Central Bank continued to deploy all the instruments within its control in the hope of keeping the economy afloat. The actions, however, proved insufficient to fully avert the impending economic contraction. The condition that led to the contractions in the first quarter of 2016 – still largely the recession, which was signalled in July 2015 – now appears imminent.”
“The flexibility we are talking about – we hope to avail more details in the coming days – BDC are part of the foreign exchange market but I am not saying that we are going to restart funding of BDCs operations. We are going to provide foreign exchange for the importation of machines for products whose local materials are sourced 80 per cent locally”
“We will support attempts by people to set up factories, create direct investment; we will provide the incentive that they need to produce and stimulate growth. However, we are not going to support buyers who seek Forex to import almost all of the raw materials” said Emefiele
The Naira weakened slightly yesterday selling at N346/$1 from N345 on Monday.