CBN may maintain tight monetary policy, targets rate convergence

The Central Bank of Nigeria (CBN) is likely to continue its tight monetary policy as well as targeting convergence as the Monetary Policy Committee (MPC) begins its two-day meeting today.
The CBN Deputy Governor, Dr. Joseph Nnanna has given a hint that the apex bank may retain its tight monetary stance on persistent dollar shortages.
The CBN has also restated its resolve to converge the multiplicity of exchange rates in the forex market.
The exchange rate of the naira against the U.S. dollar appreciated on the parallel market last week when it gained N6 to close at N380 on Friday, stronger than N386 last Monday, as the CBN sustained its dollar injection in the interbank forex market.
The story is not the same in other segments of the market, that is banks and Travelex, where the naira traded at N362 to the dollar.
Nnanna told Bloomberg at the weekend that the aim of the new forex window for investors was to “achieve the convergence” between the different exchange rates.
The currency trades at N382 to the dollar on the new window for investors, 18 per cent weaker than the interbank forex rate.
“If we achieve convergence, I don’t think the window will be necessary anymore because you’ll have one exchange rate for the economy,” he said.
He said that one advantage of the foreign exchange shortages is that they have forced Nigerians to buy more local products, including food such as rice.
“The craze for imported goods has declined,” he said. “Our consumption pattern is changing. We are producing what we used to import before.”
The central bank will boost lending to agricultural businesses through its intervention funds, he said.
“We won’t lose sight of our developmental function, in the sense that if there’s a sector where we need to intervene, we will do so, we are more bullish with the agriculture sector”, he said.
In a related development, CBN’s Acting Director of Corporate Communication, Mr. Isaac Okorafor in a statement on Sunday said the CBN’s commitment to ensure that there is enough forex supply to genuine customers to achieve the rate convergence.
CBN Governor, Mr. Godwin Emefiele had at the end of the MPC meeting last March stressed that one of the objectives of the central bank was the rate convergence in the various segments of the market.
According to Nnanna, this is not the time to ease policy. Inflation slowed for a third month in April, but at 17.24 per cent remains almost double the upper limit of the central bank’s 6-9 per cent target.
“We are battling with liquidity as it were, so a tight monetary policy will remain for now,” he said.