The Central Bank of Nigeria’s Monetary Policy Committee will likely review the naira exchange rate regime by adopting a more flexible and market-determined rate as economic recession looms over the country, it has been learnt.
Vice President Yemi Osinbajo had a few weeks ago said the nation was considering a more friendly and market-determined exchange rate policy.
Economists and CBN sources said the probability that the MPC would review the exchange rate policy by tinkering with the forex market system was very high.
They argued that the negative growth rate recorded by the nation’s Gross Domestic Product would make the adjustment of the forex policy a priority decision by the committee, which began its two-day meeting on Monday.
The National Bureau of Statistics had on Friday released its first quarter 2016 report in which the nation recorded its first negative GDP growth in decades.
According to World Bank statistics, the negative growth of 0.36 recorded by the nation’s GDP in the first quarter was last recorded in 1995.
Experts said the nation would likely record another negative GDP growth in the second quarter, plunging it into recession.
The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, said the MPC would not adjust the Monetary Policy Rate and the Cash Reserve Ratio.
He, however, predicted that it would adjust the exchange rate policy, arguing that this was essential to stimulate growth and curtail a possible recession.
Chukwu said, “I see the MPC adjusting the exchange rate policy by making some changes in the forex market system. I see the committee coming up with something like a Dutch Auction System in the forex market.
“The exchange rate may no longer be pegged at N197 to the dollar again. The CBN may start selling forex to the public through banks in which a market-determined rate will be used.”
Some experts view the possible exchange rate policy review to a more market-determined rate as a de facto devaluation of the naira.
However, President Muhammadu Buhari has repeatedly said he will not devalue the naira, because it will not benefit the poor.
But Osinbajo announced a policy review on May 11 that “may feature” a devaluation.
Barclays Plc, Goldman Sachs Group Inc. and Renaissance Capital Limited are among banks predicting that the MPC will carry out a de facto devaluation of the naira, or a gradual removal of capital controls that have choked the economy of dollars needed to pay for imports from fuel to milk, according to Bloomberg.
The Head, Investment and Research, Afrinvest West Africa Limited, Mr, Ayodeji Ebo, said the negative GDP growth in the first quarter was a reflection of the economic challenges in the nation.
