The Central Bank of Nigeria today released guidelines for the flexible foreign exchange policy it announced in May.
A flexible exchange rate system is a monetary system that allows the exchange rate to be determined by supply and demand.
The implication of this is that with a high demand for the dollar in Nigeria, there is every likelihood that the naira will experience a further decline in the coming months.
The delay in the release of the details of the policy, however, led to further depreciation of the naira at the parallel market. It also made equities to post record losses in the past few weeks.
Experts and stakeholders believe a flexible exchange rate policy is the right way to go for the country.
Here are the comments made by some of them:
The Director General, Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf, said recently that a flexible foreign exchange policy would lead to the reduction in the arrears of remittances, which had accumulated for the past 18 months.
He added that it would reduce uncertainty that investors had been grappling with over the last one year; and boost investor confidence as well as attract greater forex inflows to the economy.
The Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, who lauded the proposed exchange rate policy, said the development would eliminate the fears that foreign investors had been nursing about the Nigerian forex policy.
According to him, the decision may make the naira to depreciate initially, but it will find its equilibrum price later.
The CBN Governor, Mr. Godwin Emefiele, had earlier expressed optimism that a flexible foreign exchange policy would halt the free fall of the naira.
Addressing journalists at the end of the bi-monthly MPC meeting in Abuja last month, Emefiele said, “The MPC voted unanimously to adopt greater flexibility in exchange rate policy to restore the automatic adjustment properties of the exchange rate. Consequently, all nine members voted to hold and introduce greater flexibility in managing the foreign exchange rate.”
Manufacturers who have faced great difficulty accessing foreign exchange for the purchase of vital materials and equipment for production are, however, not very optimistic about the flexible exchange policy.
The President, Manufacturers Association of Nigeria, Dr. Frank Jacobs, during his assessment of the first year of the President Muhammadu Buhari’s administration, suggested that it might take a long time for the new policy to have an impact.
He said, “The recent deregulation of the forex market may be seen as a partial solution to the forex challenge the country is facing; but in reality, the scarcity of forex has not abated.
“Consequently, manufacturing companies found it extremely difficult to source forex for the importation of essential raw materials and this has led to a number of closures of affected companies.
“In addition, discordant policy measures and pronouncements emanating from the various arms of government (Presidency, CBN, Finance Ministry) did not help matters as manufacturers found it difficult to plan their production.”