How CBN rubbished Muoghalu’s ‘prophesy of doom’, now seeks single digit inflation
In far away December last year, Kingsley Moghalu, former deputy governor of Central Bank of Nigeria (CBN), described the flexible foreign exchange policy of the Godwin Emefiele led CBN as damaging and questionable.
Whereas he immediately called on President Muhammadu Buhari to respond to the country’s negative economic growth with decisive action and a clear vision that will restore confidence in the economy by first stopping the apex bank’s forex policy, the bank moved ahead without passion and gradual results.
Today, based on the gains of the policy in returning several sectors except the ICT to manageable footing, Emefiele has declared that Nigeria “will get back” to single digit inflation.
No doubt, the gradual shrinking of inflationary trend in recent times is a sign that forex rates are nearing convergence which remains the key target of the policy at inception.
Responding to an interview with Arise Television, Emefiele explained that with the improvement seen in growth from the negative 1.7 per cent in the last quarter of last year to the negative 0.5 per cent in the first quarter of 2017, the inflation target “is achievable in the course of time”.
“In 2017, with the improvement we have seen in growth, from the negative 1.7 per cent in the last quarter of last year to the negative 0.5 per cent in the first quarter of this year. We have seen exchange rate stability with some of the actions we have taken in the last couple of months. We do expect that if this trend continues, we should get better.
“Firstly, with inflation trending downwards, we are hopeful that in the course of time, we will get back again to single digit inflation.
“On inflation, the CBN had a target of six to nine per cent, unfortunately, it grew to 18.8 per cent and I am happy it is coming down, and I am hopeful it will continue to get better. We looked at the foreign exchange market, and today we have ensured that forex is not N500/$1. It is now between N360 and N370/$1 and we will ensure it gets even better from where it is right now”.
“We want more people to invest in the economy, and that was why we introduced the Investors’ & Exporters’ Window. We want forex market that will be determined by demand and supply. It has helped in forex flow and led to the appreciation in the naira we are seeing today,” the CBN boss added.
Muoghalu, a professor at the Fletcher School at Tufts University, had argued in an opinion piece to the Financial Times in December that “Few things have been as damaging as a series of questionable foreign exchange policies adopted by the central bank. In response to sharply declining dollar revenues from oil that have depleted the country’s external reserves, the bank first maintained an artificial exchange rate and refused to further devalue the naira for 16 months. This was in addition to the bank’s ban on access to the foreign exchange market for importers of a range of items, from cement to toothpicks”.
However, his argument that a growing black market for hard currency and sharply reduced output by manufacturers due to challenges to import raw materials do not hold water any longer as recent manufacturers’ index shows otherwise.
