Members of the Monetary Policy Committee of the Central Bank of Nigeria have expressed concerns over the high forex demand pressure in the nation’s foreign exchange market.
The MPC members voiced their concerns in their personal statements at the last MPC meeting on Wednesday.
The Deputy Governor, Corporate Services Directorate, Mr. Edward Adamu, observed that the demand pressure in the forex market had remained elevated in the face of declining accretion to external reserve and declining private inflow. In his opinion, legitimate sources of foreign exchange demand, speculation and other frivolous demands had contributed to sustaining pressure on the naira exchange rate.
Since the demand for foreign exchange thrives on naira liquidity, Adamu added that “It is therefore pertinent to properly guide the flow of liquidity to those activities/sectors that promote growth and employment using instruments that can target productive activities, rather than those that ease credit creation generally.”
On the other hand, the Deputy Governor, Economic Policy Directorate, CBN, Dr. Kingsley Obiora said the CBN had implemented various measures to ensure stability and alleviate the imbalance between forex supply and demand.
In order to support the naira, Obiora said Nigeria must be built in such a way that it meets the needs of all citizens. He observed that foreign school fees and medical expenditures account for a non-negligible share of FX purchases from the CBN’s foreign reserves.
“Rather than exerting pressure on the naira to provide for the needs of the privileged few, imagine a Nigeria where all citizens have access to high-quality schools and hospitals within the country.” He said.
Another member of the committee, Prof. Adeola Adenikinju, stressed the need to diversify forex supply to the economy. He stated that measures to curb speculative, and even precautionary demand for foreign exchange is important and that a more beneficial long-term goal should be to expand the number of domestic projects and economic activities that generate more foreign exchange or that are import substituting.
Adenikinju added that banks needed to create more products that would utilize the liquidity in the economy.