The suspension of Nigeria’s Central Bank governor by President Bola Tinubu, will usher in the much needed monetary policy reform and strengthen exchange rate at the parallel market, analysts are saying.
President Tinubu, on Friday suspended Godwin Emefiele, governor of the Central Bank of Nigeria (CBN) following the ongoing investigation of his office and the planned reforms in the financial sector of the economy.
Tinubu had in his inaugural speech on May 29, 2023 signalled plans for a single exchange rate. He said monetary policy needs thorough house cleaning and that the Central Bank must work towards a unified exchange rate.
This, he said, would direct funds away from arbitrage into meaningful investment in the plant, equipment and jobs that power the real economy.
According to the CBN, monetary policy refers to the specific actions taken by the Central Bank to regulate the value, supply and cost of money in the economy with a view to achieving the government’s macroeconomic objectives.
Interest rate or cost of credit is currently at 18.5 percent from 12 percent in June 2014, when Emefiele assumed office as the CBN governor.
Nigeria’s inflation rate has risen to 22.2 percent as of April 2023 compared to a single digit rate of 8.2 percent in June 2014, data from the CBN indicated.
Exchange rate at the official window has depreciated by 66.36 percent from N155.7 per dollar in June 12, 2014 to N462.9/$1 as of June 8, 2023, data from the CBN show.
Read also: Nigeria Eurobonds jump as Emefiele ouster marks end to multiple FX rates
The foreign exchange pressure continued at the parallel market where naira depreciated by 38.81 percent to N760 per dollar as of Tuesday, June 10, 2023 compared to N465/$ in 2016.
Analysts have predicted that naira will weaken to N700 per dollar at the parallel market.
A source close to the matter said the parallel market should somewhat firm up against the US dollar, all other things being equal.
“I expect that [the dollar firms up], as the sound bite from the parallel market is so far encouraging,” the source said.
“But this may be impacted by the upcoming NASS elections. The lobbying price for the Senate president starts from $500,000 per person…..and the House is a bit lower.
“Most of the dollar [for bribing lawmakers] will be sourced from the parallel market. There are doubts that any of the contenders will offer such an amount to 109 & 360 members respectively. Not quite conceivable even where a lower amount goes to the latter,” the source said.
Taiwo Oyedele, head of tax and corporate advisory services at PwC Nigeria, talked about the President’s inauguration speech where he promised to clean up the CBN and reform the monetary policy regime to harmonise exchange rates which has been a major economic distortion as one basis for his projection.
“In addition, the President also signalled his preference for a low interest rate regime in order to stimulate growth and create employment. The suspension or departure of the CBN Governor is expected to pave the way for these much needed reforms at the CBN and more broadly in the monetary policy management of the country. By implication, this will not only impact on the financial sector positively but also the broader economy,” he said.
Uche Uwaleke, professor of capital market at the Nasarawa State University Keffi, said a number of programmes Emefiele was driving and was passionate about will likely suffer some setbacks.
These include the Anchor borrower, the eNaira, RT 200, and the unpopular currency redesign.
“Monetary policy is likely to change course from tightening to a little dovish which supports economic growth. In forex management, exchange rates are much likely to be unified bringing more transparency and opening up prospects for foreign investments. But the inflation rate is likely to soar,” he said.
