Implement More Reforms To Improve Efficiency Of Foreign Exchange Market, Economists Tell FG

Some finance and economic experts have urged the Federal Government to implement more reforms to improve the efficiency in the foreign exchange market following the persistent decline in the value of the Naira against the United States Dollar.

The Economists said this while reacting to the decision of the Monetary Policy Committee of the Central Bank of Nigeria where the benchmark lending rate was increased by 25 basis points to 18.75 per cent.

Commenting on the MPR increase, the Chief Executive Officer (CEO) of Comercio Partners Asset Management, Tosin Osunkoya told THE WHISTLER that the MPR increase indicates the dangers surrounding the country’s economy as a result of the cost-push inflation.

Osunkoya said, “The Monetary Policy Committee (MPC’s) decision to raise the benchmark interest rate (MPR) by 25 basis points to 18.75 per cent demonstrates the Committee’s concern about the consequences of cost-push inflation, which happens when the cost of capital rises as a result of a policy rate increase.

“The narrowing of the asymmetric corridor around the MPR to +100 or -300 basis points is a significant step towards giving more stability to the broader interest rate framework and preventing excessive interest rate volatility.

“But this acknowledges that forex supply issues are contributing to exchange rate volatility and shows the challenges that the forex market faces.

“This highlights the importance of more reforms to improve the efficiency of the FX market and attract more foreign investment to curtail the inflationary shock.”

Osunkoya stated that the CBN is faced with the complex and difficult duty of controlling price stability, inflation, and exchange rate all at the same time.

This, according to him, has hindered the positive impact that was to be felt in the economy as a result of the increase in MPR.

“Striking a balance between these demands can be difficult, and a realistic approach is essential to solve these difficulties effectively. The CBN must develop policies that encourage sustainable economic growth. However, it is critical to recognize that reaching all three of these economic objectives at the same time may be a difficult and complex task in the current context” he noted

In addition to these, he urged investors to stay cautious and seek diverse options that consider complicated economic issues and changing regulatory landscape.

Also reacting to the increase is Professor Uche Uwaleke, the President of the Association of Capital Market Academics of Nigeria.

Uwaleke told THE WHISTLER that the MPR 25 basis point increase acknowledges the fact that there’s very little the CBN can do to tame inflation through policy rate.

He added that this decision will push more people into chronic hardship in the country.

“The tepid increase by just 25 basis points is an acknowledgment of the fact that there’s very little the CBN can do to tame supply-side-induced inflation via the policy rate.

“Also on the other hand, a decision to maintain policy parameters could be misconstrued as insensitivity on the part of the CBN concerning rising inflation. So, it does seem that the MPC decision is an attempt to thread a middle-of-the-road path,” he said.

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