Forex: Economists hail CBN decision on free float of Naira

Economists have continued to give kudos to the Central Bank of Nigeria (CBN) for allowing the naira to float freely on the Investors and Exporters (I&E) window.

Supreme reports that banks are now allowed to trade foreign exchange on the I & E window at any rate, subject to the N1 spread between buy and sell.

Supreme recalled the Naira on Wednesday exchanged N664.04 to the dollar, a drop which showed a 40.78 per cent when compared with N471.67 it exchanged to the dollar on Tuesday.

Prof. Akpan Ekpo, Chairman of the Foundation for Economic Research and Training (FERT), said the CBN's decision to allow the naira to float freely is good for the economy.

“It is a good attempt to narrow the gap between the official rate and that on the street. This will reduce the distortion.

“However,it will not eliminate the street rate, otherwise known as the black market rate. The forex matter has to do with supply and access.

“We should be ready for a further rise in the inflation rate,” he said.

Ekpo advised that the economy be diversified so that more productive andmanufactured non-oil goods can be exported, thereby ensuring an inflow of foreign exchange.

Prof. Ken Ife, a development economist, also spoke in the same vein, describing the decision as a fantastic way to go forward.

“The action that has been taken isis about the I&E window,window, asking banks to now buy and sell on the I&E window.. So, they have opened up the I&E window but not the black market.

“You cannot force the black markets to come and join the official window. So, what happens is that only demand and supply will push the black market closer to the official window.

“What will happenis that is that when the supply increases in the official window, the rates will fall,fall, and the black market will fall along with italong with it. As the rates begin to fall, the black market will follow through,” he said.

Ife said that the free float was not a magic wand that would cause the activities of the black market to disappear.

He said that it would rather cause the demand in the black market to continue to reduce as the prices and gaps close down.

“However, the main thing is that if you don’thave an have an extreme supply of dollarsdollars going into the system, there will be a problem.

“This is because what will happen is that there is going to be a sharp rise in the priceof the of the dollar.

“Then, as the supply comes in, the price will start to come down because the sharp rise is caused by the uncertainty and speculation.

“For example, if we reduce the importation of refined products, then it means that NNPC will no longer be spending more dollarsdollars. This means that more of that dollar can get into the market, andthen we can then we can also cut back on certain things.

“These are the things that canbring them bring them in and suddenly force the rates to crash. It will also save the central bank from burning reserves to subsidesubside the market,” he added.