Abuja, June 15, 2023: A financial expert, Prof. Uche Uwaleke, says it is commendable for the Central Bank of Nigeria (CBN) to unify the country’s exchange rate.
Uwaleke, a Professor of Capital Market at the Nasarawa State, Keffi who said this in an interview with the News Agency of Nigeria on Wednesday in Abuja, however, cautioned against a sudden free float of the Naira.
According to him, the economic fundamentals required to support a Naira float are still very weak, especially in relation to 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 unconducive 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,” he said.
He said that the unification of exchange rates should not be a one step process but should be implemented over a period of time, however short it may be.
According to him, empirical evidence suggest that reforms are more successful when they are sequenced and implemented in phases.
“This is against the backdrop of the oil subsidy removal, which, taken together, can result in galloping inflation and rising poverty level.
“So, while fiscal and monetary policy reforms are welcome, absolute care should be taken to strike the right balance and minimise their unintended consequences,” he said.
CBN was reported to have officially floated the Naira on Wednesday, as Investors and Exporters (I&E) exchange rate window hit N755 to the dollar.
That implies a 21 percent depreciation of the Naira compared to the previous rate of N463 to the dollar.
By this development, buyers and sellers of foreign currency in the official FX market are now allowed to quote rates they find comfortable in the FX market.
This is against previous practice where rates were dictated by the CBN.
