CBN defends naira without let, spends $2.63bn in July

THE CENTRAL BANK OF NIGERIA (CBN) sold foreign exchange amounting to $2.63 billion to authorized dealers in July 2019. The amount is $130 million higher than the $2.50 billion sold to the dealers in June.

Data sourced from the CBN Economic Report for the month of July 2019 revealed that foreign exchange inflow into and outflow from the CBN in July 2019 were $3.61 billion and $3.84 billion, respectively, and resulted in a net out flow of $0.23 billion.

However, aggregate foreign exchange inflow into and outflow from the economy were $9.33 billion and $4.19 billion, respectively, resulting in a net inflow of $5.14 billion.

Godwin Emefiele, CBN governor, is an avid believer in the guided foreign exchange market, and has given justifications for the unconventional monetary policy approach the bank had adopted, particularly in the forex market and development financing, saying it has helped to optimally balance the delicate objectives of price stability and real output growth.

At a Leadership Programme Lecture Series, titled: “Up against the Tide: Nigeria’s Heterodox Monetary Policy and the Bretton Woods Consensus,” which he delivered at the University of Ibadan, Oyo State, earlier in the year, Emefiele had explained that just like fiscal policy, monetary policy could, at a time when development challenges abound, complement the efforts of fiscal policy in employment generation, wealth creation and attainment of other growth objectives.

He highlighted countries such as the United States of America, Brazil, among others, that had to rely on unconventional monetary policies in times of economic difficulties to resuscitate growth.

“Within the CBN, our unconventional methods (especially in the management of the forex market and our development financing) supported by the or

thodox approaches (in the form of our timely adjustments of monetary policy rate) have been able to optimally balance the delicate objectives of price stability and real output growth.

“We will continue to develop policy instruments and device ways of ensuring that an optimal mix of heterodox policies is continually deployed to engender the overall wellbeing and prosperity of the Nigerian economy. Our overall aim remains the concurrent attainment of price stability, real growth, full employment, and poverty reduction,” he added.

Emefiele, who recalled the challenges that confronted the Nigerian economy in 2016, when it slipped into recession as well as various initiatives and policies that were introduced to revive the economy, noted that in April 2017, the Investors and Exporters’ (I&E) window, which allowed investors and exporters to purchase and sell foreign exchange at the prevailing market rate played a vital role in this regard.

At another forum, Emefiele, said the bank would continue to defend the naira, saying that the CBN Act demands that it defends the currency using the foreign exchange reserves.

“In effect, the CBN would be disobeying the law establishing it, if it sits idly by and allow the naira to be determined wholly by the socalled market forces.

“Second, those who call for floating of the currency betray their wilful ignorance of the effects of significant depreciation, however short-lived, on inflation.

“Several empirical analyses have shown that the pass-through of changes in the exchange rate on consumer prices is almost onetone.

“This implies that for every percentage point depreciation in the Naira, there is almost the same rise in inflation,” Emefiele explained.

To Lukman Otunuga, research analyst at FXTM, a free-floating naira would certainly sting the Nigerian economy via capital flight and sharp depreciation in the currency.

“This would impact consumers as inflationary pressures skyrockets with naira weakness felt across all four corners of the nation,” he explained.