Some finance and economic experts have said that the decision of the Central Bank of Nigeria (CBN) to discontinue the forex exclusion policy on the 43 items will lead to naira rebound at both the official and the Bureau de Change segments of the Nigerian Foreign Exchange Market (NFEM).
On Thursday, the new CBN boss, Yemi Cardoso, lifted the restriction placed by the former CBN governor, Godwin Emefiele, on the importation of 43 items including rice, cement, and palm oil.
The decision was influenced by the collapse of the naira to N1,050 at the parallel market while the NFEM, formerly known as the Investors and exporters window recorded the highest daily fall of the naira to N799.9 per dollar on Thursday.
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To reduce the pressure, Cardoso said, “As part of its responsibility to ensure price stability, the CBN will boost liquidity in the Nigerian Foreign Exchange Market by interventions from time to time. As market liquidity improves, these CBN interventions will gradually decrease.”
By the CBN’s decision to lift the restriction, importers of rice, cement and other 41 items will have free access to buy forex from the cheaper official market window.
Muda Yusuf the Chief Executive Officer of the Centre for the Promotion of Private Enterprises and a Professor of Finance and Capital Markets, Uche Uwaleke, argued that the decision will reduce the premium between the official and parallel market.
Yusuf said the decision of the apex bank would eliminate the distortions in the forex market.
The CPPE CEO said the exclusion of the 43 items was one of the several drivers of distortions in the forex market.
Yusuf said, “The exclusion of the items also contributed to the persistent divergence in rates between the official window and the parallel market.
“The exclusion was also in conflict with extant trade policy as the items were not under import prohibition in the first place. It was an example of lack of policy coordination under the previous administration.”
According to the CPPE boss, the new directive would also improve transparency and disclosures in foreign exchange transactions.
But he warned against the suppression of the Bureau de Change segment of the forex market.
He said, “The CBN should avoid market suppression tendencies, especially outside the Investors and Exporters window.
“Meanwhile, the fiscal authorities should continually monitor the economic landscape to shape the character of fiscal policy measures to regulate imports in line with comparative advantage principles.
“We need to worry about the risk of import surge. There is also a need to upscale the use of fiscal policy measures to boost domestic production and productivity.”
Professor Uwaleke argued that the decision would trigger a gain for the naira.
However, he added that it would also threaten import substitution and local manufacturing efforts.
Uwaleke said, “Regarding the readmission of the 43 items to the forex market, its immediate impact will be to reduce the premium between the official and the parallel market.
“But it will have negative implications for import substitution and local manufacturing efforts.”