Forex policy: IMF, Others Hail CBN As Naira, Capital Market Appreciates
The International Monetary Fund (IMF), the European Union (EU) delegation to Nigeria and the Lagos Chamber of Commerce & Industry (LCCI), among others, hailed the policy.
IMF spokesman Gerry Rice told a weekly news briefing that the Fund wanted to see how effectively the naira exchange market functions once the new float system becomes effective.
CBN Governor has said the bank expects the naira to settle at around N250 to the dollar after it abandoning the peg of N197 to the dollar it has supported for 16 months.
“I think the announcement yesterday to revise the guidelines for the operation of the Nigerian interbank foreign exchange market is an important and welcome step,” Rice told reporters. “It will provide greater flexibility in that market, the foreign exchange market.”
“As we have said before, a significant macroeconomic adjustment that Nigeria urgently needs to eliminate existing imbalances and support the competitiveness of the economy is best achieved through a credible package of policies involving fiscal discipline, monetary tightening, a flexible exchange rate regime and structural reform,” Rice said, adding that allowing the exchange rate to better reflect market forces is an integral part of that.”
LCCI Director General Muda Yusuf said the Organised Private Sector (OPS) had consistently canvassed the new position taken by the CBN in the past 18 months.
He said the OPS expects an improved liquidity in the forex market, significant improvement in the allocative efficiency of foreign exchange and improved investors’ confidence.
Yusuf said the new policy will enhance the supply of forex to the market from capital importation, export proceeds and diaspora remittances.
He said the policy will also moderate the exchange rate in future as the supply of forex improves.
He said: “The policy is a major incentive to exporters as they will have unfettered access to their export proceeds. Besides, the federation account will benefit from better revenue inflows from the CBN as sale of subsidised forex comes to an end.
On the continued exclusion of 41 items from forex market the LCCI boss canvassed the need for the CBN to review its position. He argued that many of the items on the list are inputs for industries leading to negative impact on the manufacturing sector.
According to him, the exclusion has led to considerable loss of jobs in industries, distributive trade sector and maritime sector. Furthermore he said the negative policy has led to considerable loss of customs revenue, with the capacity to impact negatively on the federation account and fiscal viability of governments at all levels.
He argued that if government fails to retrace its step on this singular policy, the phenomenon of smuggling would be aggravated in respect of some of the excluded items.
Head of Trade and Economics at the EU delegation to Nigeria and West Africa, Mr. Fillippo Amato, commended the policy, saying it will attract huge investments into the economy. He said prospective foreign investors who have been holding on to their funds will be impressed with the new policy and will have no choice but to invest as market forces will determine the real value of the Naira.
Meanwhile, the local currency gained N12, rising from 367 to 355 against the United States dollar at the parallel market on Thursday, a day after the Central Bank of Nigeria released the much-awaited foreign exchange market framework.
Forex dealers and analysts said the naira-dollar exchange rate, which closed flat at 367 on Wednesday, started reacting to the new policy following a rise in the supply of the greenback at the parallel market on Thursday.
Traders said on Thursday that the naira would likely fall next week as the country switches to a flexible and market-driven exchange rate policy.
Analysts also said that the naira might slide to a record low when the new open-market foreign currency trading commenced on Monday.
“We are expecting an initial wide depreciation of the naira at the official window, but the rate could stabilise at around the present black market rate of 370, depending on how much dollars the central bank will be willing to push into the market,” a senior trader told Reuters.
However, the CBN has said it is “reasonably optimistic” the naira will settle at around 250 to the US dollar, according to Reuters.
While forecasting that that naira will initially weaken against the greenback following a flotation on Monday, the CBN Governor, Godwin Emefiele, said the local currency would gain significantly over time.
Quoting a letter to President Muhammadu Buhari by the CBN governor was said to have noted that the naira would settle around 250 against the greenback.
“I must assure Your Excellency that we are indeed reasonably optimistic that at some point, the rate will settle around 250 naira,” Emefiele was quoted to have written by News Agency of Nigeria.
The letter, which briefs Buhari on the foreign exchange plan, says it could take three to four weeks to clear a $4bn backlog of foreign exchange demand.