Amid fear of imminent recession, the monetary policy committee of the Central Bank of Nigeria has moved to buoy the economy, necessitating the adoption of flexible foreign exchange regime and leaving the rates unchanged.
But the development has rekindled the hope of an economic recovery, AllAfrica reported.
The 255th meeting of the Monetary Policy Committee of the Central Bank of Nigeria, which ended in Abuja last Tuesday is significant for a number of reasons.
The decision of the committee to adopt a flexible foreign exchange rate regime, albeit with a “small window for critical transaction” after rebuffing several calls to that effect, will continue to generate discussion, perhaps until details of the window is made public.
Besides, debating the policy shift even with the dual forex rate that it would foist on the economy, another fallout of the meeting that has attracted the attention of analysts and stakeholders is the disclosure by the CBN Governor, Godwin Emefiele, to the effect that “recession appears imminent.”
Recent data from the National Bureau of Statistics indicate that the economy contracted to about 0.36% in the first quarter of the year, the first time in over a decade. Some experts fear that the economy might shrink again in the second quarter, which ends in June, a development they say will lead to recession.
The MPC’s latest decisions and the warning of impending recession have attracted the attention of economic analysts and stakeholders, who have expressed diverse opinions.
While some agreed that the introduction of a flexible foreign exchange regime will positively impact the economy, others stated that the impending recession would not be for a short term.
The analysts welcomed the introduction of flexible exchange rate regime, enthusing that it would boost investor confidence. They said the multiplier effect of the new forex policy would impact the economy and may ward off the recession.
Executive Director, Corporate Finance, BGL Capital Ltd, Femi Ademola, said, “The decision by the MPC to adopt a flexible exchange rate appears to be very apt considering the current development in the foreign exchange market.”
According to him, “by the policy, exchange rate would be market determined while the CBN would be the invisible hand in the market which uses money supply to affect the price indirectly.”
Essentially, Ademola noted that “the flexible exchange rate mechanism adopted will now make Nigeria to conform with the “impossible trilogy” that require an independent monetary policy and liberal capital mobility to be combined with a flexible exchange rate for efficiency.”
