•Oppose benchmarking parallel market rates
By Elizabeth Adegbesan
The members of the Central Bank of Nigeria’s, CBN, Monetary Policy Committee, MPC, have called on the apex bank to carry out a comprehensive review of the foreign exchange market operations in the country to determine the fundamental drivers, and relative sizes of the segments of the market.
They also advised the Bank to ignore the call by some stakeholders that the parallel market rate should guide the appropriate exchange rate in Nigeria.
This was contained in the just released Personal Statements of Members in the MPC Meeting of September 2021.
According to Adenkinju Festus, “The exchange rate movements remain worrisome. The demand pressure in the formal market remains exceedingly high. The challenge is how to boost foreign exchange supply to the economy.
He said: “In the light of the above, I would like to make the following recommendations, First, given the limited options open to the Bank to expand foreign exchange supply in the near term, there is a need to carry out a comprehensive study of foreign exchange market operations in Nigeria with a view to determining the fundamental drivers, and relative sizes of the segments of the foreign exchange market in Nigeria.
“In addition, there must also be effective monitoring of the DMBs to close loopholes for shady practices, collusion, and round tripping.
“Continuous communication to market operators on the policy of the Bank and assurances that customers will continue to have access to their domiciliary accounts is particularly important to improve transparency and certainty. “Furthermore, the Bank should engage with the Government and the NNPC to find out the reasons for the non-remittances of any foreign exchange from crude oil and gas exports for two consecutive months.”
On his part, Asogwa Robert said: “The limited export activities and the advancing of post-COVID imports together with some speculative activities continued to exert undue pressure on the exchange rate in the domestic market.
“There is some sort of naira exchange rate stability at the officially recognised NAFEX or I&E window with a marginal depreciation of 0.22 percent between end-July 2021 and end-August 2021.
“The path of the Naira exchange rate remains highly uncertain even though the gross external reserves increased by 8.23 percent between end-August 2021 and end-July 2021. Oil futures prices now indicate somewhat lower prices ahead, implying a possible weaker naira in isolation.
“While the Government continues with measures to secure foreign financing from several sources in order to reinforce the level of external reserves in the near future, efforts at containing the anomalies created by the unrecognised foreign exchange market especially by the BDCs need to be ramped up. The government should however continue to aggressively explore options to enhance non debt-creating foreign inflows by strengthening domestic production and export capacity.”
Obadan Idiahi noted that against the backdrop of relatively improved foreign exchange reserves, the Bank should consider augmenting supply to the foreign exchange market while also considering further demand management measures.
He added: “On the exchange rate, the Bank should ignore the call by some stakeholders that the parallel market rate should guide the appropriate exchange rate in Nigeria. This suggestion has no basis. That market constitutes a negligible proportion of the foreign exchange market in Nigeria.
“Consequently, it cannot provide guidance on the appropriate exchange rate in the country. Rather, it is the equilibrium rate, as empirically determined, that should provide guidance on the appropriate level of the exchange rate.”