Achieving Price Stability (CBN Statutory Role) By Dr Kenny Odugbemi
In pursuance of one of the audacious economic policy of this administration,June 2023 ,CBN announced unification of all segments of FXmarket into investors and exporter IE window
This FX liberalization policy witnessed the devaluation of Naira using
Willing buyer
Willing seller- model
At this point FX market continue to witness high level of volatility thus further widening the gap between parallel and official rate
This policy also worsened inflation evidenced by skyrocketing prices of goods and services
Influence of IMF/World bank
We should be circumspect in applying IMF/Worldbank model through severe conditionalities such as
Floating of Naira
Removal of petrol subsidy
Removal of electricity subsidy as almost every Countries that agreed to this stringent conditions thier economy collapsed
Reflections
*Control work best as pre-planning strategic drive when they are not needed
*Naira is a weak currency why are we floating?
*Government therefore must take it over stop floating and back it by conceivable asset and moderate it to point of stability in our sustainability trajectory
*FX allocation
As we have no firm.control in Nigeria, we have to ration our forex through “que” management concepts in allocating scarce FX across different sectors of our economy that requires forex to support thier business
*Government must take over supervision responsibilities of all value chain in production of local crude oil, discharge into as appropriate at consumer price threshold
*Coushing effect
Federal government sought for loan syndicate of $3bn through Afriexim and other Consortium at of today they have disbursed $2.25bn through NNPC as msin guarrantor to bridge the forex gap,but this was facilitated through SPV whose charges remain unknown
“If NNPC is that credit worthy to be a guarrantor”
why using another SPV this must be reserved for Ministry of Finance to provide further update
*This opportunity will enhance the management backlog in forex market where many investor local and foreign including our local.bank who are not reimburse till date
*The forward by Cargo importers will be guaranteed through this loan and restore confidence in the economy
*This effort will play significant role to prevent price hikes through flaunctuations including forward request by local bank through CBN and thier foreign counterpart
*Repayment of this loan facility is through future delivery are paid upfront, taking hedge to protect though this is complex
Price balancing mechanisms in Dual cargo transaction, with 10% mandatory repayment mode after paying 90% of the first cargo, the second cargo will be protected as lender has enough as cover up program
*Complexity of this transactions
Holding of asset under the ground to move cash on prepayment mode to have money for today implementable economic program
*Performance risk is high for underground natural resources these include
✓Militancy attack
✓Price flaunctuations
✓Climate change
*Hence it is better to convert at historical peak money
*Transform economy through infrastructure development
*China became richer in globalization because China use thier asset to build thier infrastructure
*Further reflection of $3bn loan syndicate
*Interest rate is an aggregate of 6% this include base interest plus margin,if global interest change this 6% will also change in same direction,when compared with Mutual bond and yield at interest rate of 15%
✓Floating of Naira has contributed to riding cost of living with our fragile economy
✓Naira floating will always keep price hike at all time
✓Free fall of Naira must be backed by ban on Cryptocurrency and Binance with thier respective ban, we have seen drop of forex exchange from N1850-N1390
✓MPC Committee recently inaugurated have only two options such as
✓Increase MPR from 18.75% to 21%
Decrease MPR and increase interest on Treasury bill, mutual fund, bond from 17% to 21%
✓We need to mop of excess of N2.77trn
Conclusion
The Government must decide on unilateral rate that is widely acceptable against existing multiple rates, all of which will guarantee price Stability