CBN warns against high forex demand

Gbola Subair, Abuja - 06.02.2009

The Central Bank of Nigeria (CBN) has warned that the high demand for Foreign Exchange (FOREX) as a result of the current financial meltdown would adversely affect the economy.

The warning came on the heels of the massive depreciation of the naira witnessed in the country mid-December, when it depreciated by approximately 14.5 per cent to N134.00 per dollar at the interbank segment.

The CBN governor, Professor Chukwuma Soludo, at a one-day seminar on “The Challenges of Ensuring Appropriate Inflation Rate, Exchange Rate and Interest Rate Regimes in Nigeria,” in Abuja, said the demand for FOREX in Nigeria increased recently due to demand by foreign investors in the stock market who were leaving as a result of the global meltdown.

Other reasons, the CBN governor said, were high volume of imports due to declining price of goods abroad because of recession and drop in freight costs and foreign banks and institutions recalling existing loan facilities in the wake of global credit crunch.

The apex bank boss said if the external reserves were allowed to run down completely, the exchange rate would adjust in a drastic form as countries like Ghana and Zimbabwe had experienced.