World Bank condemns CBN exchange policies

The World Bank condemned the exchange policies of the Central Bank of Nigeria’s (CBN’s), saying the benchmark for the rate and the management policies are what discourages foreign investors from coming into the Nigerian market.

According to the World Bank the exchange rate policies of the CBN are not only discouraging investors from coming into the country, but they were also fueling inflation in the country.

This was contained in the November edition of Bank’s Nigeria Development Update, saying there had been intense pressure on the naira, with the CBN constantly raising the nominal official exchange rate.

The organization noted that the CBN’s foreign exchange management system was too rigid, with the system driving inflation in the country.

The report read in part: “The government’s exchange rate management policies continue to discourage investment and fuel inflation. Exchange rate stability is a key CBN policy objective, and to preserve its external reserves the CBN continues to manage FX demand and limit the supply of FX to the market.

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“Pressure on the naira remains intense, and while the CBN has raised the nominal official exchange rate three times since the start of the pandemic (by 15 per cent in March 2020, five per cent in August 2020, and seven per cent in May 2021), FX management remains too rigid to respond to external shocks.

Meanwhile, exchange-rate management has emerged as one of the key drivers of inflation.”

The report also said that CBN was yet to introduce enough flexibility into FX management to sustainably respond to external shocks, adding that the NAFEX rate was not a true reflection of the market rate.

According to it, “While the CBN supplied an average of $2.5bn to the Investors and Exporters forex window in the months just prior to the COVID-19 crisis, it only supplied an average of $0.5bn in the months thereafter.

“The NAFEX rate, which is now the guiding exchange rate for the economy, continues to be managed and is not fully reflective of market conditions.