The Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) at the end of its May 23 and 24 meeting, has voted unanimously to introduce a flexible interbank foreign exchange market and to retain a small window for funding small transactions. They also retain both Monetary Policy Rate (MPR) at 12 percent and the asymmetric corridor around the MPR at +200/-500bps. Retained the Cash Reserve Ratio at 22.5 percent and the liquidity ratio at 30 percent.
The Committee noted that the action taken at the meeting is predicated on a less optimistic outlook for the economy, given that initial monetary injections from the budget may not immediately impact on the economy.
Speaking on the state of the economy, Godwin Emefiele, the central bank governor, said: The conditions that led to the contractions in the first quarter of 2016 were still largely unresolved. The recession which was signalled in July 2015, now appears imminent. Emefiele, who spoke on behalf of the committee, said the previous decisions of the MPC need time to crystallise, hence, there was no need for adjusting rates.
The MPC asked the bank to adopt a flexible exchange rate system, to allow for inflow of foreign exchange and needed investment. The committee noted that it was time to introduce greater flexibility in the foreign exchange market. The committee re-affirmed commitment towards maintenance of price regulation, Emefiele said.
The committee said in the period of stagflation, the options are very limited, the committee decided on the least risky option. The MPC voted unanimously to adopt a flexible exchange rate policy. Emefiele said the apex bank would unveil plans for the flexible exchange rate system in the course of time, adding that the implementation of budget 2016 will further reflate the contracting economy.