The Central Bank of Nigeria is expected to maintain its tight monetary policy as dollar shortages persist come next week when its Monetary Policy Committee meet, National Daily findings has revealed.
Speaking in a telephone conversation, CBN’s Deputy Governor, Joseph Nnanna gave the indication. “We are battling with liquidity as it were, so tight monetary policy will be for now,” he said.
The Monetary Policy Committee, of which Nnanna is a member, is scheduled to announce its interest-rate decision on May 23. All but one of 21 economists surveyed predict the MPC will keep the main rate at a record high of 14 percent, a level it’s been at since July.
Nnanna also said he will probably replace Sarah Alade as head of economic policy at the CBN, a role that’s key to wooing back foreign investors and helping the nation alleviate a crippling shortage of dollars.
While investors welcomed the move, liquidity has so far been low, with only around $40 million traded daily, according to Exotix Partners LLP. It is picking up and spreads between bids and offers are narrowing, Nnanna said.
The aim is to “achieve convergence” between the naira’s different exchange rates, Nnanna said. The currency trades at 382 per dollar in the new window, 18 percent weaker than the tightly controlled official interbank rate of 315.
“If we achieve convergence, I don’t think the window will be necessary anymore because you’ll have one exchange rate for the economy,” Nnanna said.
One advantage of the foreign-exchange shortages was that they forced Nigerians to buy more local products, including food such as rice, Nnanna said. “The craze for imported goods has declined,” he said. “Our consumption pattern is changing. We are producing what we used to import before.”
Alade retired in March and was the best-known of Nigeria’s four deputy governors among global bond and stock investors, often accompanying Governor Godwin Emefiele on roadshows.
Nnanna, who is currently in charge of financial-system stability and has also overseen the economic policy directorate since Alade’s departure, said a new foreign-exchange window for investors was starting to work properly.
Nigeria has been battered by a scarcity of dollars since oil prices crashed in 2014, its economy contracting last year for the first time in a quarter of a century. The central bank, which had imposed capital controls, last month opened a platform for portfolio investors to trade the naira more easily and allow them to determine the exchange rate.