Why CBN will not allow free-floating naira

CENTRAL Bank of Nigeria (CBN) has said it will not allow the naira to freely float in order to prevent a situation whereby inflation will become unbearable for citizens.
The apex bank also insists that it will not remove some 41 items on the list of those ineligible for import through the official foreign exchange window.
There have been local and international pressures on CBN from currency speculators, traders, consultants and politicians to allow the currency to freely float as a way of easing foreign exchange scarcity that has hit the country.
Speaking with Nigerian Tribune at the weekend, Acting Director of Communications at the apex bank, Mr. Isaac Okorafor said there was no reasonable justification to allow the naira to float in the market given that Nigeria is mainly an import dependent country.
He explained that the current high level of inflation in the economy was mainly imported as a result of naira depreciation and that the situation would escalate further should CBN allow further depreciation.
“What we have in the economy now is managed float,” CBN Governor, Mr Godwin Emefiele had explained during a press briefing shortly after Monetary Policy Committee (MPC) meeting in Abuja on Tuesday, last week.
Banks will also be in trouble as they will no longer be able to cope with servicing the foreign facilities they have already acquired when dollar was cheap.
Demonstrations and press conferences have been organised in recent times to pressurise political authorities and CBN management to review the list of 41 items, which are mainly items, which Nigerians can produce locally like toothpicks, toilet roll, rice, palm oil, roofing sheets, and so on.
Another senior bank source who pleaded anonymity expressed worry at the role of a prominent chamber of commerce, whose members were described as business people with main interest in importing these items, “are less bothered about what happens to the larger society.”
“Let me tell you what will happen if we give in to the pressures to allow naira to freely float: the currency may in a matter of weeks depreciate to N1000/dollar and of course you know the implications of that on majority of our people.
“Already at N305/$, many parents have withdrawn their wards previously studying abroad. What do you think will now happen if things get worse?”
The source lamented that the pressure became so much in 2016 that CBN was forced to introduce the managed float regime upon arguments that foreign investors were not willing to bring in their investment in the belief that naira was overpriced.
“Since that time when naira went from N197/$ to what it is presently, why have they not brought in the so-called investment?” the source wondered.
Nigerian Tribune learnt that some individuals who have been able to save much foreign currency in the past are the ones organising protests so that once naira is much weakened, they can “swoop on the economy by acquiring some banks as an inroad to controlling this economy.”
CBN also announced late last week that some individuals have continued an unwarranted attack on its policies.
It noted that despite scarcity, it had managed to grow foreign reserves to $28.9 billion, representing an increase of 12 per cent within the first three weeks of this year.
The bank listed some of its other achievements in recent months to include ensuring that inflation remained within manageable limits; intervening in critical sectors through injection of much-needed capital to promote growth and employment; promotion of export-driven industrialisation as some of those efforts.
It had also provided easy access to credit to farmers and small scale entrepreneurs at single digit rates, protecting the interest of bank customers and ensuring that low income earners are protected from the vagaries of high naira depreciation.