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LCCI calls for flexible exchange rate

By on April 10, 2016

The Lagos Chamber of Commerce and Industry has proposed the adoption of a flexible exchange rate regime as a solution to the current economic crisis in the country.

The proposal was contained in a speech delivered by the President, LCCI, Dr. Nike Akande, at the 2016 first quarter press conference of the chamber.

According to Akande, the average naira exchange rate has remained stable at the inter-bank segment of the foreign exchange market with a daily average of N196.99 to the United States dollar between January 25 and March 14, 2016.

She said, “So far, the value of the naira has depreciated by 17.2 per cent at the Central Bank of Nigeria window from N165 to the dollar (which it was at the end of December, 2014) to the current rate of N196.9 to a dollar.

“However, the parallel market is still under pressure for the last couple of months even as the depreciation remains huge with the value of the naira weakening by almost 100 per cent at an average of N320 to a dollar.”

The LCCI president expressed concern about the recent sharp depreciation of the naira exchange rate in the parallel market, adding that the trend should not be allowed to continue and all necessary steps should be taken to stem the slide and volatility.

She noted that it was as much of an issue to consumers as it was to producers and other stakeholders that create value in the economy.

While calling for an urgent review of the forex policy, she stressed that the discussion should not be about the devaluation of the naira but about a pricing mechanism that is sustainable, predictable and transparent.

She said, “It is about a policy regime that would reduce uncertainty and inspire the confidence of investors. It is about a policy framework that would minimise discretion and arbitrage in the foreign exchange allocation mechanism.

“A flexible exchange rate regime is often adopted to cope with changing demand and supply conditions in the forex market.

“A flexible forex regime among other benefits; enhances liquidity in the forex market, reduces uncertainty and therefore enhances the confidence of investors.  It is more transparent as a mechanism for forex allocation, minimises discretion in the allocation of forex and reduces opportunities for round tripping and other sharp practices.”

According to her, the current fixed exchange rate framework adopted by the CBN is better suited for a country that has adequate reserves to support fixed rate.

She said, “But in our case, we do not have the reserves to support the exchange rate at N197 to a dollar. This is a fundamental issue at this time.

“The consequences are already manifesting in the widening gap between the official and parallel market exchange rates to an unprecedented level of over 60 per cent, lack of liquidity, mounting trade debts, increasing factory closures, mounting inflationary pressures and sharp drop in capital inflows.”

 

[Punch]