The governor of Central Bank of Nigeria (CBN), Godwin Emefiele, has said it is better to maintain stable exchange rate to avoid Naira depreciation than to build foreign reserve buffers.
Emefiele’s comment came against the backdrop of the depletion in the nation’s external reserves, maintaining steady decline since July 5 and dropping by $4.44 billion to $43.35 billion as at October 11, 2018.
Ripples Nigeria reports that the CBN had resisted calls to allow the forces of demand and supply determine the value of the Naira in the foreign exchange market.
Rather, it fixed the exchange rate and continued to support the local currency through its interventions from the nation’s external reserves thereby contributing to the current depletion currently experienced in the external reserves.
CBN spokesman, Isaaac Okoroafor, had said in Abuja early this month that the loss in reserves was also triggered by reversal of capital flows by foreign portfolio investors seeking to take advantage of investment opportunities in the United States as the country’s FED reserve continued to raise its interest rates.
Addressing journalists on Sunday at the end of the International Monetary Fund (IMF) and World Bank Group (WBG) Annual Meetings in Bali, Indonesia, Emefiele said maintaining a strong local currency was part of the outcome of the Nigerian delegation’s meetings with investors and institutions at the event.
The CBN boss said the pressure on the local currency and loss of reserves were not the situation in Nigeria alone, adding that all frontiers and developing markets in the world were facing the same challenge.
He said like other emerging markets nations, Nigeria has also lost reserves but only marginally because it had managed to sustain stability in its foreign exchange market.
Read also: Nigerian govt admits nation in debt distress
It would be recalled that the International Monetary Fund (IMF) had recently cautioned Nigeria over its declining foreign reserves, even as it said the normalization of interest rates in the U.S. contributing to the capital outflows was still in its early stages.
Emefiele however said, “We are very conscious of the need to build buffers but unfortunately I must say that we are in the period where it will be difficult to talk about building reserve buffers.
“We can only build reserve buffers if we want to hold on to the reserve and then allow the currency to go, and wherever it goes is something else.
“So, it is a choice we have to make and at this time the choice for Nigeria is to maintain a stable exchange rate so that businesses can plan and we do not create problems in the banking system assets.”
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