Alliance for Economic Research and Ethics Urges FG to Strengthen Foreign Reserves and Enforce FX Discipline
The Alliance for Economic Research and Ethics Ltd/Gte (AREET), a Nigerian not-for-profit organisation working to strengthen both the private and public sectors in Nigeria, has urged the federal government to prioritise foreign exchange reserves accretion and disciplined FX management, noting that the Central Bank of Nigeria is navigating an exceptionally complex macroeconomic environment.
In a press release signed by Hon. Dele Kelvin Oye, AREET says that the recent trimming of the Monetary Policy Rate (MPR) by the CBN from 27.50% to 27% after months of a sustained high-rate regime has been blamed for stifling long-term investment and hollowing out legacy of manufacturing. But AREET says that while the CBN bears responsibility for high rate regime, it is not solely to blame.
“The CBN Governor’s measured restraint is notable, yet an excessive reliance on the interest-rate instrument to fight inflation has produced unintended adverse effects.
“This raises a critical question: which lever matters more for inflation control — interest rates or the exchange rate?
“Evidence points decisively to the exchange rate. Stability in the foreign exchange market has been the principal driver of the recent disinflationary trend; interest-rate hikes have had marginal effect by comparison”, AREET noted
“The current sustained disinflation is largely the result of exchange rate policy rather than high interest rates. Exchange-rate stability soothes inflationary pressures more effectively than punitive borrowing costs.”
“The policy lesson is clear: Nigeria’s problems are fundamentally structural. Monetary policy is necessary but not sufficient. It cannot substitute for sound governance, disciplined fiscal management, or legal and constitutional reforms that shape public sector incentives”, AREET says.
AREET recommends that the recent episode “should prompt a rebalancing of policy levers and the entrenchment of FX and fiscal stability as preconditions for sustained inflation control.
“Government borrowing for long-term projects is legitimate and necessary. But the CBN can help protect the private sector by imposing sectoral limits and a robust risk management framework on public borrowing. For example, reserving 40% of banking assets for private-sector lending would force the public sector to source financing at market rates for up to 60% of banking resources, reducing crowding-out and preserving access to credit for the private sector.
“For durable macroeconomic stability, ongoing cooperation between the CBN and the Ministry of Finance is imperative, anchored on sustained economic diversification, especially in the non-oil sector”, AREET says in its press release.
The organisation commends the CBN for prudent monetary stewardship underpinning FX stability. Even the recent “Dangote refinery effect” owes much to the government’s naira-for-crude arrangement and sensible exchange rate management.
It concludes that the CBN has achieved its better outcomes chiefly through exchange rate management.
“If there is an economic elixir, it is exchange rate stability — repeatedly”, adding that equally essential is CBN vigilance over fiscal discipline — the cornerstone of any credible path to single-digit inflation.
AREET says it is committed to supporting the CBN’s dual mandate: balancing growth with inflation control.
Credit: nextmoneyng.com