Naira Power Falling Badly.

Nigeria is grappling with additional challenges, including a faster rate of inflation, as the gap between the official and parallel segment of the foreign exchange (FX) market continues to widen.

As of yesterday (Tuesday), the differential between the two windows had hit N110, which experts said would increase informal remittances and discourage genuine investors who might be waiting to bring in funds.

This comes as the Monetary Policy Committee (MPC) retained the policy rate at 11.5 per cent yesterday as it ended the last session for the year. The policy rate is the benchmark against which other lending rates in the economy are pegged.

The liquidity ratio and cash reserve ratio (CRR) were retained at 30 per cent and 27.5 per cent respectively. The governor of the CBN, Godwin Emefiele, said the Committee voted “unanimously” to retain the parameters”. He said all the three possibilities – increase, hold, reduction – had economic benefits but that the “hold option” was most desirable to “reverse the recession and achieve the medium-term macro-economic stability.”

The governor spoke on the factors responsible for the escalating headline inflation but assured that the worrisome food price would begin to moderate on the back of harvest season, which starts soon.

The retention of the Monetary Policy Rate, CRR and liquidity ratio implies that the money supply to the economy will, other things being equal, remain unchanged in the coming months. A reduction would imply a higher money supply, more consumption, more employment but higher inflation. On the flip side, an increase would have further tightened the already-contracted economy.

 Nigeria’s current economic problem arises as a result of having only one major exportable product, which is petroleum. Our economy is affected every time oil price falls in the world market.

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