Governor, Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, yesterday, attributed the pressures on exchange rate in the parallel market to illegal and criminal activities of some individuals.
Emefiele stated this while receiving the Vanguard Newspaper Personality of the Year Award at a colourful event held in Lagos.
He also urged Nigerians to embrace the wave of nationalism sweeping across the globe as exemplified by the Brexit vote in Britain and election of Donald Trump as President of United States.
In response to calls for the free float of the naira exchange rate in order to address the gap between the interbank and parallel market exchange rates, Emefiele said: “Even a simple Purchasing Power Parity analysis will conform that the Naira is not as weak as the rate in the parallel market is suggesting. Even if one were to allow for risk pricing and other uncertainties, it does appear that there is no basis in our economic fundamentals to support the prevailing exchange rate at the parallel market. The only logical explanation to the high rates in that market therefore is that a lot of illegal and criminal activities are being carried out there.
“Given this scenario, the CBN cannot sit idly bye and allow such faceless and criminally minded people to destroy the currency under the guise of a free ûoat as is being canvassed by some so called experts.”
Defending the foreign exchange restrictions imposed on some the 41 items, Emefiele said: “Let me also take this opportunity to speak on the Bank’s policy on the so-called 41 items. As I have hinted in previous paragraphs, this policy was basically borne out of necessity to conserve foreign exchange. I know that no policy is cast in stone and hence, we may have no need for it someday in this country. But, policymakers across this country need to pay attention to global trends and ensure that they react upon our strategy and thinking. Given the new realities of nationalist and populist sentiments sweeping across the world the calls from certain quarters for a reversal of this policy is quite saddening.
“And here at home, this policy has been used to achieve signiûcant sufficiency in cement, a product whose importation could have been costing us over US$3.2 billion in FX Reserves annually. In effect, therefore, this policy needs to be supported not just in response to the pressure on the Naira but as an opportunity to change the economy’s structure, resuscitate local manufacturing, and expand job creation for our citizens.
“Let me assure everyone listening that the CBN is acting in the best interests of ordinary Nigerians, regardless of the noise from the few entrenched interests whom our policies may be hurting. Let me also reiterate the central bank’s willingness, determination, and capacity to continue to meet all legitimate transaction-based FX demands in the market. I obviously cannot be of help to people or businesses who are into speculative FX demand. My promise instead to this group, whether foreign or local, is that the CBN will make sure they lose money!”
On the challenge of rising inflation, high interest rate, and declining Gross Domestic Product (GDP), Emefiele said: “In view of the fact that our current episode of inflationary pressure is coinciding with contracting economic growth, we have to recognize the dilemma it poses to policymaking. “This is because no single macroeconomic policy can address rising inflation and slow growth simultaneously, because fighting inflation may require implementing policies that might, in the short term, be inimical to economic growth, whereas, adopting expansionary policies to stimulate growth usually worsen inflation”.
“This is the reason the Monetary Policy Committee has, rather than concede to reducing rates, decided to HOLD its position through the adoption of tight monetary policy and this is also the reason we have seen a deceleration in the rate of month-on-month inflation in the last couple of months.
“If we can approximate cost of capital as the average saving interest rate, which is about 6 percent, what then accounts for lending rates at 25 or more percent? It is cost of doing business. For example, a typical Nigerian Bank must employ the services of policemen and other security people deployed constantly to protect its branches. The bank must also provide a signiûcant amount for reliable electricity and broadband Internet services to keep its systems running. These expenditures only further increase costs of doing business for lenders, a cost they must pass on to borrowers.