The Chief Executive Officer of RTC Advisory Services Limited, Mr. Opeyemi Agbaje, has advised the new Central Bank of Nigeria (CBN) Governor, Mr Godwin Emefiele, to show a little bit of flexibility in relation to the exchange rate, even at a cost of a one off inflation pressure.
Agbaje, said the inflation rate could still be kept at below 10 percent., saying he would prefer the Governor to apply some flexibility in exchange rate and 9.0 percent inflation for instance, rather than depleting reserves perpetually and sending the wrong signal to currency speculators and encouraging moral hazard
“I don’t like sharp depreciation or large devaluation because it impacts more shock to the economy. For instance, in 2008 when the global financial crisis happened, we had kept our exchange rate at N117 per dollar, N118 per dollar for like four to five years and that day immediately the oil prices hit us, we moved from N118 per dollar to N150 and that was a stronger shock to the market. That is why I don’t like such sharp devaluation”, he said
He said his preference is for a flexible exchange rate on a continual basis that allows the monetary authorities to use the exchange rate as a mechanism to deal with demand for dollars, inflation conditions, reserve levels, for dealing with multiple considerations, rather than just one factor as the country had done. According to him, the risk of the policy the country had followed was that it made it mandatory that one day we would do a massive devaluation that then distorts the economy and cause structural problems.
“ I am in favour of more flexibility exchange rate that send the signal to the market, that when the monetary authorities sees that the currency is under attack, respond by increasing the price of the currency, and when it sees that the currency is strong again, it can even strengthen the exchange rate back, that moderates the monetary policy environment based on a multiple of factors rather than just a single minded commitment to protect the exchange rate
“It does not make sensible policy to use the reserve to defend the naira. We are using foreign reserves to create billionaire or millionaire illegally at our own expense.
“Anytime you do a rate that is different from the market, you are subsidizing those who buy dollar because anybody who buys dollars from RDAS is receiving a subsidy of N10 to N15 from the Nigerian government. This is because everybody knows that it is N170 per dollar in the market. Anybody that issues a subsidy should have strategic reasons for doing so, but who are we subsidizing, we are subsidizing the school fees of all the people that have their children in schools abroad. We are subsidizing the holiday of everybody who chooses to go on holiday, we are subsidizing the corruption of anybody who steals money and transfers it abroad. We are subsidizing wine and champagne, all the consumption we do. Now there is some good element of the subsidy, industries that import raw materials and create jobs or anybody that is importing currency for otherwise productive purpose”, he said.
“ But what is the proportion of those productive purpose to the total consumption of dollars. So I don’t support the CBN’s determination, as espoused under Sanusi and supported by most Nigerians to protect the naira at the expense of our reserves and at the expense of our common patrimony, because it is collective subsidy to capital flight, to MTN in remitting its profit, to all the foreign companies to remitting their profits, to importing wine, holiday, petrol which we should be producing in Nigeria. It does not make economic sense”.
Emefiele resumed as the Governor of CBN along with his deputy, Mr. Adebayo Adekola, recently. President Jonathan had nominated the duo to the Senate for confirmation in March 2007, following the suspension of the former Governor, Sanusi Lamido Sanusi. Sanusi was indicted by the Financial Reporting Council (FRC) and other investigating bodies of various acts of financial recklessness and misconduct. Emefiele, was until now the Group Managing Director, Zenith Bank PLC, a position he has held since August, 2010.
