CBN lauded for resuming forex sales to BDCs

The Chief Executive Officer, BIC Consultancy Services, Dr. Boniface Chizea, has said the Central Bank of Nigeria’s (CBN) resumption of sale of foreign exchange at the rate of $20,000 to each of Bureaux De Change is commendable. He noted that the CBN explained that this is aimed at achieving an appropriate marketdetermined exchange rate as distortions are removed at the retail end of the market. According to him, this sale will be at the rate of N1,301/$, representing the lower band rate of executed spot rate at NAFEM the previous day while the BDCs are to sell to their customers at a margin not exceeding one per cent.

He stated that the signaling effect inherent herein with regard to ideal rate of exchange must not be ignored. He urged the CBN to move towards a target band for the movement of the rate exchange as a way out of the deleterious current free fall of the naira. Chizea disclosed these in a statement yesterday while responding to the monetary policy rate increase by the Monetary Police Committee (MPC).

He said: “The key decisions of the Committee are; an unusual hike in the base rate by four hundred basis points, an increase in Cash Reserve Ratio from 32.5 per cent to 45 per cent and Liquidity Ratio, which was retained at 30 per cent. “The Monetary Policy Rate (MPR) for the avoidance of doubt is the rate the CBN lends to banks as it discharges its lender of last resort obligations while the Cash Reserve Ratio is the prudential deposits, which banks are obliged to keep with the Central Bank and the Liquidity Ratio is the liquid assets which the banks must maintain. “It is in order to observe that these measures were taken to better manage and align the excess liquidity in the economy to facilitate a reduction in the headline inflation in the country estimated at 29.90 per cent in January, 2024 rising from 28.92% in December while food inflation is estimated at an unsustainable rate of 33.9 per cent.”

The ex-banker said that a high inflationary environment was inimical and damaging to the growth prospects of any economy He noted that the growth in the Gross Domestic Product (GDP) for the last quarter of 2023 has been estimated at 3.46 per cent rising from 2.54 per cent in the third quarter. He said with this rate of growth in excess of estimated annual population growth rate of about 2.5 per cent; there should have been development within the economy contrary to the prevalent experience. He opined that this index flies in the face of felt experiential conditions in the economy today, that one is left scratching his head wondering how the growth came about. According to him, relative high rates of inflation in any economy besides making the economy uncompetitive, punishes the poor and mostly in come earners who do not have the facility to pass on such price increases.

He said that this situation in the Nigerian economy today largely accounts for the wild cat spate of protests in the land in such a manner as have not been seen for a long time. He lamented that in an unprecedented manner, many Nigerians now go to bed hungry, and as should be expected, many are angry. He stated that it is a welcome development that the CBN has indicated arising from this meeting, its readiness to target inflation as a focus of policy. He advised that the rate of exchange, which largely accounts for spiraling rates of inflation, will also be targeted to checkmate the free fall in the rates of exchange.

He noted that the other causes to the prevalent high inflationary environment are disruptions in the supply chain of farm products largely due to the insurrection in the land; banditry, kidnappings for ransom and of course climate change. He said that budget deficits and how they are funded by the fiscal authorities impact the level of inflation particularly if funded through the Ways and Means finance as was experienced lately. Chizea said: “But is the whopping hike in interest rate the panacea? We must also see interest rates as factor costs which feeds into the cost of business. Unfortunately, Central Banks across the globe are hindered from the perspectives of available instruments to fight inflation.