CBN’s new flexible exchange policy: A tragic error, says expert

Central Bank of Nigeria

Central Bank of Nigeria

A former newspaper editor and a retired bank executive, Phil Aragbada, has described the newly introduced flexible exchange rates regime as a tragic error.
Speaking to journalists in Ibadan recently, the economic analyst explained that exposing the exchange rate to the forces of demand and supply at a time when the country was witnessing economic recession would lead to an enduring economic depression with a negative impact on prices, consumption, productivity and employment.

He pointed out that the current 16 per cent inflation rate, regarded as the worst since 2010, would further skyrocket, due to high cost of production, leading to a drop in disposable income and consumption.

This scenario, he opined, would manifest in the rise in industrial inventories, leading to a reduction in overall production, consequent layoffs and stagflation.

Aragbada stressed that with the nation’s economy, already reeling under the yoke of high-interest rates,the current naira depreciation will dampen the production capacity of both small, medium and big industries”.

The CBN policy, according to him, will also affect the 2016 budget as the increase in fiscal expansion in the area of governments’ capital projects with huge foreign imput, will worsen balance of payment deficits, which was bound to further weaken the local currency.

Appealing to the CBN to have a rethink, Aragbada suggested the adoption of a home grown economic strategy in form of guided deregulation, through the creation of a lower and upper band for the local currency, which will give the monetary authority the latitude to inject foreign currency into the system,when the value of the naira falls below the official band and vice versa.

The analyst advised the CBN to give special attention to the critical sectors of the economy through official exchange rate and lower interest rates for agriculture, small and medium scale industries.

He said that the hypothesis of the flexible exchange rates pundits that the system would attract foreign investors to the country cannot stand the test of time, as the prevailing socio economic spasm in the country, despite unabated government’s battle against the scourge, will continue to serve as a veritable disincentive to external investors and those with surplus foreign currencies irrespective of the foreign exchange liberalisation.

These uncertainties, policy reversals and somersaults, coupled with paucity of viable investment windows as a result of insecurity, he said, must be ameliorated in order to win the confidence of foreign and local investors, including tourists alike.

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Phil Aragbada

1 Comment
  • Paul Igbinoba

    This is a recipe for perpetuating the prevailing onset of recession capital flight and absence of a sustainable, predictable and robust foreign exchange mechanism. What the Nigerian economy needs now is a market-determined, transparent and accountable forex market in which both the local and international financial and investment communities have confidence. This is also the silver bullet we need to re-balance the economy away from precarious import dependence and refocused toward backward integration, domestic reliance and productivity; and export-led growth. Goodbye to Mr. Phil Aragbada’s ‘guided deregulation,’ which never worked and is euphemism for price controls and lack of confidence in market forces and the attendant rent-seeking and corruption opportunities it creates. Welcome to a brave new world of investment, wealth-creating and employment-generating opportunities for the Nigerian economy and allied stakeholders, local and international.. .