CBN bows to pressure, adopts flexible exchange rate policy

The Monetary Policy Committee of the Central Bank of Nigeria has directed the management of the apex bank to adopt a flexible exchange rate policy.

The CBN Governor, Godwin Emefiele disclosed this on Tuesday while addressing journalists shortly after the end of the two day MPC meeting held at the apex bank headquarters in Abuja.

He said with the directive, the apex bank would within the next few days release a new guideline on the management of foreign exchange in the country.

A flexible exchange rate system is a monetary system that allows the exchange rate to be determined by supply and demand.

The implication of this is that with a high demand for the dollar in Nigeria, there is every likelihood that the Naira would experienced further decline.

The bank had been under pressure over the last few months to either devalue the Naira or adopt a flexible exchange rate policy.

Emefiele said following the recent depreciation in the country’s foreign exchange, time has now come for the bank to introduce greater flexibility in the management of foreign exchange.

He said while the country awaits the new policy to be unveiled soon, the bank would only fund critical transactions such as importation of vital machinery for production as well as essential basic raw materials that are critical for manufacturing which by their nature cannot be sourced locally.

Also at the meeting, the MPC decided to retain the Monetary Policy Rate at  12 per cent,while also retaining the Cash Reserve Requirement at 22.5 per and the Liquidity Ratio at the current rate of 30 per cent.