CBN’s flexibility exchange rate will enhance forex allocation—LCCI

Friday Ekeoba

The Lagos Chamber of Commerce and Industry, LCCI has said that the recent position of the Central Bank of Nigeria (CBN) to adopt a flexible exchange rate regime will improve the efficiency of forex allocation in the domestic economy.

According to LCCI, the CBN’s move will amongst others also cause a reduction in the distortions that currently characterise the forex market and bring the economy closer to equilibrium.

In a statement obtained by National Times yesterday, the Director General LCCI, Mr. Muda Yusuf said the apex bank decision will further improve liquidity in the forex market and also cause a reduction in the current trade arrears.

“Reduction in the arrears of remittances which has accumulated for the past 18 months. Reduce uncertainty which investors have been grappling with over the last one year. Boost investors’ confidence and attract greater FOREX inflows to the economy.

While welcoming the decision of the CBN to refrain from further tightening of monetary policy at this time, the chamber noted that the current context is that the economy has been declining. “The Gross Domestic Product (GDP) has contracted for the first time in twelve years; unemployment is on the rise; manufacturing capacity utilization has been weakening; and investors’ confidence has been at its lowest ebb.  The decision not to tighten monetary policy is therefore appropriate.

However, the LCCI explained that while the CBN articulates the framework for the new forex regime, due consideration should be given to the fact that the economy desires a transparent FOREX market which guarantees level playing fields for all investors.

“Need for clarity on what the CBN describes as a special window for critical transactions for which preferential rates will apply. We would like to caution against possible abuse and distortions that such a window could create. It could pose a risk to the entire system.  We would like to be assured that the window for the critical transactions will be managed transparently and in a manner that it will not create distortions in the economy.

“Export proceeds, capital importation and Diaspora remittances should be allowed into the economy through the autonomous window at prevailing market rates. And the owners of such funds should have unhindered access to their funds.

“CBN should revisit the list of items that have been placed on exclusion list of the FOREX market. Many critical inputs of manufacturing companies are on the list and this has crippled the operations of such companies creating significant job and output losses”, it added.

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) had on Tuesday introduced a flexible exchange rate policy into the nation’s monetary policy system. This policy allows the exchange rate to be determined by forces of supply and demand.

The CBN Governor, Godwin Emefiele revealed that the MPC decided to retain the Monetary Policy Rate (MPR) at 12 per cent, while also retaining the Cash Reserve Requirement (CRR) at 22.5 per cent and the Liquidity Ratio (LR) at the current rate of 30 per cent.

The CBN is expected to within the next few days unveil the new guideline on the management of foreign exchange in the country.

Experts are of the view that there is possibility that the Naira would experience further decline against the dollar with new directive.