Godwin Emefiele, the Central Bank of Nigeria (CBN) governor, said on Tuesday that the official exchange rate of the naira cannot be decided by the parallel market.
This is coming as financial analysts said they were not surprised that the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) rose from its 276th meeting by retaining the monetary policy rate at 11.5 percent and retained all other parameters.
Emefiele had disclosed after the committee’s two-day meeting in Abuja that the committee is leaving all parameters on unchanged.
The committee members voted to hold all policy variables at current levels with the intention to give more room for the previous rate cut to run its full course on the economy.
This is coming on the back of recent NBS report which confirmed that the economy slipped into a recession as at Q3-2020 amid sharp rising inflation and widening exchange rate divergence.
It also retained the Cash Reserve Ratio and Liquidity Ratio at 27.5 percent and 30 percent, respectively.
At the last MPC meeting in September, the committee reduced the MPR from 12.5 percent to 11.5 percent.
Emefiele then called on those using parallel market rates to put pressure on the Central Bank of Nigeria (CBN) to devalue the naira to desist because they won’t have their way.
He said, “It is unfair that even analysts who should know are using parallel market rate to say that our currency is overvalued and therefore calling for devaluation. This is very unfortunate.
“The parallel market is a shallow market of only about 5 percent of the foreign exchange market which is patronised by people who go there for cash to offer bribes and corruption. Parallel market is the place where people who don’t want to provide documents go.
“At the E& I (Import& Export) window, the rate is about N386 or N387/$1. We don’t control the I & E window. Why will anyone use the parallel market to say that the exchange rate is over N480/$1?”
According to the governor, the naira had already been devalued by about 28 percent this year, just like many other currencies of the world.
Uche Uwaleke, a Professor of Banking and Finance at Nasarawa State University, Lafia, said the outcome of the November MPC meeting, which is the last for the year, was expected.
“The MPC reduced the MPR by 100 basis points only recently- during their last meeting in September. So, I did not expect any shift in position. Yes, the economy is now in a recession but this was already known to the members of the MPC before the September meeting. The reduction in MPR at that time was meant to aid economic recovery.
“I did not expect a further reduction given the spike in inflation rate and a resurgence of pressure in the forex market.
“On the other side, an increase in MPR to stem inflation was also not expected in view of the adverse consequence on economic recovery.
“So, given the limitations associated with using the traditional monetary policy tools to stimulate the economy that is currently challenged by stagflation, the feasible option the CBN has now is to continue to use heterodox measures such as the LDR and various intervention measures to support growth”.
Cyril Ampka, an Abuja-based analyst, said the committee took the right decision at a time like this.
“I was not expecting any change and that was what the committee did. It is in line with its say nothing, do nothing, posture of 2017 and 2018 era”, Ampka said.
On the impressive performance recorded in the equities market, Emefiele said committee noted this and “particularly the increased patronage by domestic investors largely driven by low yields in the money market. The All-Share Index increased by 20.55 percent to 30,530.69 on October 30, 2020 from 25,327.13 on September 30, 2020.
“Similarly, market capitalisation grew by 20.82 percent to N15.96 trillion from N13.21 trillion over the same period. This improved performance was largely attributed to positive third quarter corporate earnings as investors moved in to pick-up bargain stocks.”
