Despite
losing nearly one percent in value at the official market since the
beginning of the year, the Central Bank of Nigeria (CBN) has insisted
that it will not devalue the naira. CBN governor, Lamido Sanusi who
defended his position said the institution has multiple roles as a
development institution, one of which is maintaining price stability.
The
International Monetary Fund (IMF) recently called on the CBN to
consider devaluing the naira and to allow more flexibility in
determining the value of the national currency, a position which the
CBN disagreed with. “We are not being stubborn with the IMF but just
being logical. Our monetary policy objective remains price stability.
We do not have a fixed exchange rate as our objective. We pursue
exchange rate stability but only as an instrument that helps us
maintain price stability. In an import-dependent economy, you cannot
fight inflation if you do not look at exchange rate.”
Delivering
the keynote address at the one-day seminar with the theme,
‘Transformational Banking for Economic Development of Emerging Markets:
Nigeria in Focus’ organized by the Chartered Institute of Bankers of
Nigeria (CIBN), the Deputy High Commission in Nigeria and the Royal
Bank of Canada, in Lagos yesterday, Mr. Sanusi said achieving price
stability is not an end in itself but a means to an end.
“About
42 percent of our consumer price index (CPI) is farm produce, 13
percent is imported goods, 14 percent is energy which is imported, and
so over 70 percent of the CPI is actually driven by factors which are
not in the short term driven by monetary aggregates.”
Developmental role
He
said the Central Bank would continue to play its developmental role in
the absence of a well-developed capital market to finance the
development of the real economy. “The naira depreciated by about 27
percent in 2009. Now that the country’s earnings have increased, there
is no fundamental reason why the naira should be devalued.”
According
to him, the value of the naira has nothing to do with the poor
infrastructure base of the economy which has made it difficult for
businesses to thrive and made it difficult to support the manufacturing
sector. He said despite contributing 42 percent to the gross domestic
product, the agricultural sector attracts only about one percent of
total bank lending.
“Stability
is not an end in itself. We pursue an objective of creating an
environment that is conducive to economic growth and development. If
you have stability and you don’t address growth issues, you don’t
address developmental issues, at the end of the day it is meaningless.”
He
said the problem of the economy was more due to lack of policy to
support growth than the value of the currency. “We cannot continue
fixing every problem by looking at exchange rate. It is quite true that
the exchange rate plays a role but how significant is the exchange rate
compared to lack of stable power supply or infrastructure or political
instability.
Defending the currency
However,
while Mr. Sanusi was defending the currency, the naira was under stress
as it closed yesterday at the official Wholesale Dutch Auction System
(WDAS) window at N150.71 to the dollar while it closed at N154.25 at
the interbank market. The CBN supplied $350 million out of the $352.7
million demanded.
Bismark
Rewane, chief executive officer of Financial Derivatives Company, a
financial and investment consultancy firm said depreciation in the
value of the naira was inevitable. He said the huge resource spent on
subsidizing fuel imports was putting undue pressure on the naira.
According to him, the naira should be revalued to about N154 to the
dollar.
“The exchange rate should be a strategic tool for achieving your
economic goals. What the IMF said is allow flexibility in your exchange
rate so that market forces will pull it in achieving equilibrium. We
are only deceiving ourselves. You can do what you like but the market
will tell you what it wants,” Mr. Rewane said.
