After months of resisting calls for the adoption of a flexible foreign exchange regime, the Central Bank of Nigeria (CBN) on tuesday finally bowed to pressure, stating that it would introduce greater flexibility in the interbank foreign exchange market structure and retain a small window for critical transactions for prospective investors.
It equally warned that the Nigerian economy might further contract in the second quarter (Q2) of this year into a full blown recession, as some of the conditions which led to the contraction in the gross domestic product (GDP) growth rate in the first quarter remained largely unresolved.
The Nigerian economy contracted by -4 per cent in the first quarter of 2016, signalling the deteriorating economic conditions in the country and its first economic contraction in 25 years.
The central bank added that the weak outlook for growth, which was signalled in July 2015 when it warned of the risk of a recession, could extend to the second quarter of 2016.
It blamed the delayed passage of the 2016 budget for constraining the much-desired fiscal stimulus, which edged the economy towards contractionary output.
Also yesterday, while citing limited options in an already tight fiscal environment and the need to allow previous monetary policy decisions to crystalise, the CBN resolved to leave the monetary policy rate (MPR), otherwise known as the interest rate, unchanged at 12 per cent with the asymmetric corridor at +200 and -500 basis points around the MPR.
Addressing journalists in Abuja at the end of the two-day meeting of the Monetary Policy Committee (MPC), the CBN Governor, Mr. Godwin Emefiele, said the central bank resolved to introduce greater flexibility in the interbank foreign exchange market structure and to retain a small window for critical transactions for prospective investors.
Emefiele’s statement aligned with President Muhammadu Buhari’s speech during his budget presentation before the National Assembly on December 22, 2015, that the central bank would consider the adoption of a more flexible foreign exchange regime.