Should CBN sustain its intervention?
The Central Banks of Nigeria in the last weeks have been bullish, pumping more than $2 billion dollars into the forex market in order to force a convergence between the interbank and black market Naira-dollar rates. While, for the most part, its intervention has led to the narrowing of the spread from a high of N520 naira to the dollar to about N360 to the dollar, its ability to continue such forceful interventions has been hinged on the price of crude oil in the international market and the value of Nigeria’s foreign reserves.
But the CBN has remained bullish sounding tough and warning speculators, whose stock in trade is betting against the naira, that they would lose money. The governor, Godwin Emefiele, has also refuted rumours that its intervention was not directed by the National Economic Council, but an independent decision of the bank. “NEC did not direct the CBN as is being insinuated in some quarters. “We have seen the trend and we took decision to revise it through our FOREX intervention,’’ Mr. Emefiele said.
Of course, with the price of oil stabilising at $53 per barrel on Tuesday, with the reduction in militancy activities in the Niger Delta and the consequent increase in oil production and with a healthy external reserves of over $30 billion, the CBN now feels very confident in dictating the price of the naira. But the question remains at what cost and in whose interest?
No matter how it is looked at, the decision of the CBN to intervene in the market was not to support manufacturers or businesses but mainly to assuage the anger of the rich and middle class Nigerians who could not get the dollars to travel abroad, pay school fees of their children abroad, and pay for medical fees abroad. The directive of the CBN to banks to immediately begin sale of forex for BTA, PTA, tuition and medical fees to customers at not more than N360 to a dollar says all about its intervention. While its intervention may lessen the scarcity of the dollars and bring about some convergence thereby helping manufacturers and other businesses to access the dollar, it was a policy meant for the rich and the medical class.
Sadly, the apex bank is using the hard-earned money of the people to support and sustain the conspicuous consumption of the rich and middle class whose inability to access the dollar is the main reason for the sustained attack and criticism of the CBN and the government. Daily, the government keeps betraying the poor and using their resources to subsidise the rich. Imagine the difference the over $2.4 billion dollars pumped into the forex market to subsidise the rich would have done to improve education, primary healthcare, sanitation and or infrastructure that touch more directly on the lives of the poor?
What is more, we are sceptical that CBN intervention alone will not be sufficient to eliminate the divergent rate between the official and black market. All that is needed for speculators to begin to bet against the naira is a sustained decline in oil prices or a sustained decline in our foreign reserves.
But this is all a wrong-headed approach. The problem of scarcity of the naira is that of policy and not supply. FDI, FPI and even diaspora remittances dried up the moment the government began its command and control policies. What is needed for stability in the market is a liberalisation of the forex market and not the CBN acting as the sole supplier and determinant of the exchange rate – an ultimately futile effort.
We urge the CBN to immediately remove the restrictions around pricing and allow for a more flexibly determined interbank rate that could incentivise autonomous inflows and reduce the pressure on its reserves. It is not a huge surprise that despite the gains in the naira and CBN intervention, there has not been a corresponding autonomous inflow from other (autonomous) sources to ease the pressure on the CBN. That may be a sign to the CBN that only a liberalised market will restore confidence in Nigeria’s forex market.
Editorial