CBN relaxes restriction on foreign exchange, retains MPR at 12%

The Central Bank of Nigeria, yesterday disclosed that it has concluded plans to in­troduce flexible foreign exchange rate management framework in the country.

This came against the back­drop of pressure on the Naira and scarcity of foreign currencies in Ni­geria.

The apex bank’s decision was announced on Tuesday in Abuja by the CBN Governor, Mr. Godwin Emefiele, at the end of the Mon­etary Policy Committee (MPC) meeting.

The details of the new regime were however not given by the MPC.

Other decisions taken by the committee included the reten­tion of the Monetary Policy Rate (MPR) at 12 percent, Cash Reserve Requirement (CRR) and Liquidity Ratio at 22.5 percent and 30 per­cent, respectively. It also retained the Asymmetric Window at +200 and -500 basis points around the MPR.

The MPC observed that "the rising inflationary pressure contin­ued to be traced to legacy factors, including energy crisis reflected in the incessant scarcity of refined petroleum products, exchange rate pass through from imported goods, high cost of electricity, high trans­port cost, reduction in food output, high cost of inputs and low indus­trial output.

"The Committee observed that in an economy characterised by high import dependence, the shortage of foreign exchange pro­vided some basis for price increas­es as currently being experienced.

"The Committee noted that the economy needed to aggres­sively earn and build up its stock of foreign reserves in order to avoid distortions when faced with severe shocks.

"The Committee further not­ed that the current inflation trend, being largely a product of structur­al rigidities and inadequate foreign exchange earnings would continue to be closely monitored, and in co­ordination with fiscal policy, with a view to addressing the underlying drivers of the upward price move­ments."

MPC recalled that in July 2015, it had hinted on the possibil­ity of the economy falling into re­cession unless appropriate comple­mentary measures were taken by the monetary and fiscal authorities.

It regretted that unfortunate­ly the delayed passage of the 2016 Budget constrained the desired fis­cal stimulus, thus edging the econ­omy towards contractionary out­put.

Emefiele said that 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. With some of the conditions that led to the contraction in Q1, 2016 still largely unresolved, the weak outlook for growth which was sig­nalled in July 2015 could extend to Q2.