Assessing Pros And Cons Of Forex Market Float On Economy

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In line with the statement by the President Bola Tinubu in his inaugural speech on the harmonisation of the exchange rate, the Central Bank of Nigeria (CBN)

Whilst this is in line with the policy directive of the new government, there has been applause as well as skepticism by analysts and industry watchers.

On his part, the head, Financial Institutions Ratings at Agusto & Co, Ayokunle Olubunmi, noted that, “If it is implemented as stated, there will be some volatility in the near term, but the forex windows will converge at a rate lower than the prevailing parallel market rate. It is a good policy. The main challenge we have in the forex market is illiquidity or inadequate supply and the reason is that the price does not reflect the fundamental price of naira.

Similarly, chief executive of Centre for the Promotion of Private Enterprise , Dr Muda Yusuf, welcomed the bold step taken by the Tinubu administration towards the unification of the naira exchange rate. “Rate unification does not imply that rates will be exactly the same in all segments of the market. The objective is to ensure that the differentials are very minimal, possibly between 5-10 per cent,” he stated.

Goldman Sachs also stated that, easing forex restrictions and clearing the forex backlog which it estimated at $12 billion, would be required to achieve a unified naira exchange rate. It interpreted the recent policy announcements by the CBN as, “significant positive surprises to our and market expectations and as being supportive of a constructive view on sovereign credit”.

 

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