• Foreign investors are 'baffled' by the regulator's stance
  • Legality of ban on currency purchases questioned by MPC member

Two members of Nigeria’s Monetary Policy Committee criticized the central bank’s attempts to prop up the naira by restricting access to dollars, while others said the regulator should allow a more flexible exchange rate.

Chibuike Uche questioned the legality of the Central Bank of Nigeria’s June decision to stop importers of around 40 items, including rice, furniture and toothpicks, accessing official foreign-exchange markets. Doyin Salami said the measure would slow economic growth and that foreign investors were confused by the central bank’s attempts to defend the naira since March.

Nigeria GDP Growth
Nigeria GDP Growth

Investors are “baffled by the CBN’s expressed unwillingness to countenance any further currency adjustments and market liberalizations,” Salami, a lecturer at Lagos Business School, said at an MPC meeting attended by all 12 members on July 23 and 24, according to a statement published on the central bank’s website on Friday. “The credibility that CBN has carefully cultivated, if not lost, is most certainly undermined.”

The naira plummeted 21 percent to a record low of 206.32 per dollar between the end of June and Feb. 12 as the price of oil, Nigeria’s main export, crashed. Governor Godwin Emefiele reacted by introducing trading curbs and bans on purchases of dollars to stem the rout. The currency has since been mostly flat in the interbank market, averaging 198.94 since the end of February.

The controls have left the naira overvalued and out of sync with the currencies of other major commodity exporters, according to bond and stock investors including Ashmore Group Plc and Investec Asset Management. The devaluation of the currency of fellow oil producer Kazakhstan on Aug. 20 increased pressure on Nigeria to weaken the naira, according to Yvonne Mhango, an economist in Johannesburg at Renaissance Capital.

‘Not Convinced’

“The denial of foreign exchange to businesses that engage in legitimate economic activities is confounding,” Uche, a professor of banking and finance at the University of Nigeria, said in his personal statement. “I am not convinced the CBN has the legal powers to deny the allocation of foreign exchange to legitimate businesses.”

Deputy Governors Sarah Alade and Joseph Nnanna said the central bank needed to inject more liquidity into the foreign exchange market and allow the currency to trade more freely.

Emefiele has repeatedly said the regulator will meet legitimate demand for foreign exchange and that its restrictions are aimed at speculators.

“The short-term growth prospect of the Nigerian economy is stronger following our recent strategy of restricting frivolous demand,” he said in his statement.

Nigeria’s growth fell to 2.4 percent on an annualized basis in the second quarter, compared with 6.5 percent in the same period of 2014. The central bank’s restrictions probably contributed to the slowdown by making it difficult for manufacturers to buy the imported goods they need to operate, RenCap’s Mhango said in a note on Friday.

Calls to the mobile of Ibrahim Mu’azu, a spokesman for the central bank, didn’t connect. He didn’t immediately respond to an e-mail requesting comment.

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