Speaking earlier today while addressing journalists shortly after the end of the two day MPC meeting held at the Central Bank of Nigeria headquarters in Abuja, CBN Governor, Godwin Emefiele disclosed that the Monetary Policy Committee of the apex bank has directed the management to adopt a flexible exchange rate policy.
The CBN boss who said with the directive, the apex bank would within the next few days release a new guideline on the management of foreign exchange in the country, added that flexible exchange rate system is a monetary system that allows the exchange rate to be determined by supply and demand.
The implication of this is that with a high demand for the dollar in Nigeria, there is every likelihood that the Naira would experienced further decline.
Speaking on the state of the economy, the central bank governor, said: “The conditions that led to the contractions in the first quarter of 2016 were still largely unresolved. The recession which was signalled in July 2015, now appears imminent.”
Mr Godwin Emefiele said following the recent depreciation in the country’s foreign exchange, time has now come for the bank to introduce greater flexibility in the management of foreign exchange.
He said while the country awaits the new policy to be unveiled soon, the bank would only fund critical transactions such as importation of vital machinery for production as well as essential basic raw materials that are critical for manufacturing which by their nature cannot be sourced locally.
Also at the meeting, the MPC decided to retain the Monetary Policy Rate at 12%, while also retaining the Cash Reserve Requirement at 22.5% and the Liquidity Ratio at the current rate of 30%.
The MPC asked the apex bank to adopt a flexible exchange rate system, to allow for inflow of foreign exchange and needed investment.
“The committee noted that it was time to introduce greater flexibility in the foreign exchange market. The committee re-affirmed commitment towards maintenance of price regulation.
“The committee said in the period of stagflation, the options are very limited, the committee decided on the least risky option. The MPC voted unanimously to adopt a flexible exchange rate policy,” Emefiele said.