The Central Bank of Nigeria (CBN) says it will not float the naira to avoid an exchange rate spiral.
Godwin Emefiele, CBN governor, said this on the sidelines of the ongoing International Monetary Fund (IMF)/World Bank spring meetings in Washington DC, USA.
The World Bank had recently urged the country to rethink petrol subsidy and its multiple exchange rate systems.
At the official market, the naira trades N419 to $1 and N588/$1 at the parallel market.
Speaking with journalists, Emefiele explained that the apex bank’s managed float system was adopted to address the peculiar challenges of the country.
A managed float FX regime is when exchange rates fluctuate daily, but CBN attempts to influence the rate by buying and selling currencies to maintain a specific range.
The governor said that despite advice offered by IMF and the World Bank, developing economies such as Nigeria had the liberty of adopting “homegrown solutions” to their economic problems.
“The IMF and World Bank provide advice that we work with. But even at some of our private meetings, we realise that there are challenges, leading us to adopt homegrown solutions to address them. We cannot adopt what is being proposed; we cannot adopt a free float of our currency,” Emefiele said.
“Both the IMF and World Bank are our prime development banks, and we have received support from them at different times in resolving some of our economic challenges, particularly bothering on finance.
“Nigeria’s situation is very peculiar, and that is why we have continued to engage the IMF and World bank to show understanding of our local problems. And they are indeed showing understanding.”
Emefiele said the managed float, which allows the CBN to intervene in the market when there is a supply shock, would be in place as long as supply exceeds demand.
“They want us to free the exchange rate. And you do know that this has some impacts on the exchange rate itself,” the governor said.
“When you allow that to happen, you will have an uncontrollable spiral on the naira.
“But what managed float means is that we have some measures in place to help control the spiral.”
According to Emefiele, the CBN is more concerned about putting interventions in place to control the exchange rate.
“With the reduction of forex for rice or maize, demand will drop. As it drops, we can adjust the exchange rate. We will continue to engage the IMF and World Bank,” he added.
Emefiele said he remained focused on his job as a banker.
He further assured that the central bank would continue to support the fiscal authorities to ensure the country records positive economic growth.
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