The Association of Capital Market Academics of Nigeria (ACMAN) has welcomed the adoption of the unified foreign exchange (FX) by the Federal Government and canvassed the need for some economic measures to ensure a successful implementation of the new FX regime.
The ACMAN President, Professor Uche Uwaleke, who described the latest monetary policy measure of the new administration as desirable for the economy, said that the economic fundamentals required to support a Naira float remained still weak, especially sourcing of forex, said that the monetary authorities should strengthen them to achieve the objectives of the measure.
He said: “The economic fundamentals required to support a Naira float are still very weak, especially with sources of forex. Let me say upfront that I support the unification of exchange rates, which makes for a more transparent forex market.
“But I think that the CBN should implement that in a way that does not cause massive distortions in the general price level. It is rather early to bank on sustainable capital inflows from foreign direct investments due, in part, to insecurity and the overall not conducive environment of doing business in Nigeria.
“This sudden Naira devaluation may draw foreign portfolio investments, which is part of the reason the stock market is surging. But we also know that portfolio investments are hot money and do not represent a sustainable source of forex inflows”, Uwaleke added.
Uwaleke, who is a Professor of Finance and Capital market at Nasarawa State University, Keffi, advised that the unification of exchange rates should not be a one-step process but should be implemented over some period of time since experiences have shown that reforms achieve the set objectives when they are sequenced and implemented in phases.
He expatiated: “This is against the backdrop of the oil subsidy removal, which, taken together, can result in galloping inflation and rising poverty levels.
“So, while fiscal and monetary policy reforms are welcome, absolute care should be taken to strike the right balance and minimize their unintended consequences”, the finance expert added.
The Central Bank of Nigeria (CBN) on Wednesday directed Deposit Money Banks (DMBs) to eliminate the FX rate cap on the Naira at the Investors’ and Exporters’ (I&E) window of the foreign exchange market as part of the efforts facilitate a free-floating system for the national currency.
Analysts believe that the apex bank’s latest monetary initiative was in furtherance of President Bola Tinubu’s commitment to unify Nigeria’s various exchange rates.
Following the directive to the DMBs, by the evening hours on Wednesday evening, banks were offering the national currency at N755/$1 while at the parallel market the Naira hovered between N750 and N754.
