The International Monetary Fund said Nigeria’s fiscal and monetary policies were too weak to stimulate the naira’s value in the foreign exchange market.
He said the country’s economic policies have created excess liquidity, making it difficult for the naira to stabilize against the dollar.
The IMF’s view comes two months after President Bola Tinub allowed free trade in currencies.
The Central Bank of Nigeria ended its regulated exchange rate regime on June 14, prompting a rapid devaluation of the currency.
The new policy is a response to President Tinub’s call for exchange rate liberalization in his May 29 inaugural address.
It also comes less than a week after Tinub sacked central bank governor Godwin Emefilée.
Emefierre, who has been governor since 2014, has been closely associated with an elaborate fixed interest rate regime that is part of wider industrial policy.
The IMF’s Resident Representative in Nigeria, Ali Aisen, said of the development, central bank remittances to the government could boost the naira’s circulation, lower interest rates, discourage savings and increase naira’s stability. He said he was blocking the influx.
About 22.7 trillion naira has been borrowed from CBN by the federal government through ‘advances in ways and means’. “
“Too many nairas are running for the scarce foreign exchange,” Aisen said at a conference in Lagos. “Forex supply may take time.” [to build up].
“The central bank of Nigeria eased foreign exchange controls in mid-June with the aim of simplifying the exchange regime and promoting dollar flows.
“This has pushed official interest rates down by 40% and continued volatility, with the dollar trading between about 750 and 800 naira last month. Furthermore, the spread between official and black market rates widened again, It reached 18%, the highest since mid-June when the currency was allowed to trade freely.
“The volatility we are seeing in the Naira is likely to continue for an extended period of time.”
Rates still need to rise even as the Abuja-based Nigerian central bank conducts its longest monetary tightening cycle in years, raising the monetary policy base rate by more than 700 basis points since May said he.
“Even if you look at the Treasury Bill rate and all the other rates, it’s very difficult to give Naira a chance to fight,” he said.
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