To review exchange rate policy in 2020, group begs CBN – Blueprint Newspapers Limited

The Center for the Promotion of Private Enterprise, an economic think tank, advised the Central Bank of Nigeria to review its foreign exchange policy in 2022 with a view to improving dollar liquidity to save the ailing naira and to help industries develop.

The group revealed it in its review of the economic and business environment for 2021 and its agenda for 2022, a copy of which was obtained by our correspondent on Sunday.

According to the CPPE, the CBN must involve stakeholders, as its current exchange rate policy regime negatively affects investors, manufacturers and other stakeholders.

The CPPE said: “In an effort to reduce the pressure on foreign exchange reserves, the CBN had excluded more than 40 items from foreign currency access in the official window.

“Some of the products on this list are intermediate products for certain manufacturing companies that have had a negative impact on certain manufacturers. It would be desirable for the CBN to have a strong engagement with stakeholders to review this list in the new year. “

According to the organization, the CBN should adopt a flexible exchange rate policy regime and allow pricing mechanisms to reflect demand and supply fundamentals in the foreign exchange market.

“It’s a political framework that would minimize discretion and arbitrage in the currency allocation mechanism. A flexible exchange rate regime is a policy choice adopted to cope with changing demand and supply conditions in the foreign exchange market.

According to the center, adopting a market rate would deepen the autonomous foreign exchange market by liberalizing the inflows of export products, diaspora remittances, multinational companies, donor agencies, diplomatic missions and others. .

He added that a flexible exchange rate would improve the liquidity of the foreign exchange market, increase investor confidence and ensure a more transparent model for foreign exchange allocation.

In addition, the CPPE said that the liquidity reserve requirements imposed on Nigerian banks by the CBN are one of the highest in the world, adding that it is a major obstacle to financial intermediation.

by banks.

According to experts, some banks have a cash reserve ratio (CRR) of 50 percent and above compared to the official CRR of 27.5 percent.

He said: “Yet financial intermediation is supposed to be the main function and the essence of the banking system. The high CRR made it difficult for banks to play their primary role of financial intermediation. Their profitability is also negatively impacted due to limited leeway for credit creation activities.

The CPPE also said that infrastructure challenges, growing insecurity, climate change, low productivity in agriculture, monetization of the budget deficit and the depreciation of the naira are fueling inflation in the country.

He added that the companies had to contend with low purchasing power, low sales and low profit margin, low capacity utilization, high production and operating costs and high risk of increased mortality of workers. companies.

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