Godwin Emefiele, CBN Governor |
The
announcement came as Nigeria’s economy faces a string of challenges, from a
weakened currency and spiralling inflation, to negative GDP growth and rising
unemployment.
President Muhammadu Buhari has refused to devalue the naira, despite a
growing gulf between the official exchange rate of 197/199 to the dollar and
black market rates nudging 350. The difference has led to a shortage of foreign
exchange, hitting businesses and leaving fuel importers unable to buy supplies,
causing pumps to run dry.
The CBN
governor, Godwin Emefiele, was last
Friday urged by financial experts to make a U-turn in policy to avoid a
“full-blown fiscal, financial and economic meltdown”. But he said the CBN’s
Monetary Policy Committee (MPC), which met Monday and Tuesday, decided on the
“the least risky option” and agreed to adopt “a flexible foreign exchange rate
policy”. No further details on abandoning the currency peg were immediately
available, with the bank promising more information in “coming days”.
An economist,
Alan Cameron, from Exotix Partners in London, said he expected
“a two- or three-tiered foreign exchange system,
keeping the official rate for critical transactions”.
He added: “I think Nigeria has clearly taken quite a hit after a year
of Buhari’s policies where he hasn’t been willing to have any flexibility at
all. I think the market will view this positively, I think investors could take
a new look at Nigeria but we need specific details about how the new system is
going to work.”
Nigeria’s
woes can be traced back to the slump in global oil prices since mid-2014, which
has cut revenue from oil sales worth 70 percent of its government income. Renewed
militancy in the oil-producing south has also hit production, cutting output to
1.4 million barrels per day from a budgeted 2.2 million bpd.
Last week,
the National Bureau of Statistics
announced that the Nigerian economy shrank by 0.36 percent in the first quarter
of this year. In the same period, unemployment increased to 12.1 percent. Inflation
rose to 13.7 percent in April.
Emefiele
said recession was “imminent”, blaming the slump on global oil prices as well
as delays in passing this year’s federal budget. But in a surprise move, he
kept interest rates on hold at 12.0 percent. (Guardian)
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