The Lagos Chamber of Commerce and Industry (LCCI) has called on the Central Bank of Nigeria (CBN) to eliminate foreign exchange restrictions on 43 products listed in their import regulations. The appeal was made during the chamber’s quarterly State of the Economy event held in Lagos on Tuesday.
Michael Olawale-Cole, President of LCCI, emphasized the importance of communicating a new framework for exchange rate management and enhancing the consistency of the current monetary policy operations to ensure price stability. According to Olawale-Cole, such measures are vital to enhancing stability, liquidity, and transparency in the foreign exchange (fx) market.
The naira’s exchange rate, as of July 19, 2023, was reported at N825/$, with the Bureau De Change (BDC) segment recording a depreciation of the naira to N762.3/$ in June from N750.8/$ in March.
Olawale-Cole highlighted that the growing disparity between the official rate and the BDC rate could be attributed to several factors, including fx liquidity challenges at the nafex window, pushing economic agents to resort to the parallel market. Additionally, the continued fx restriction on the 43 items listed by the CBN has also contributed to this disparity.
In the previous month, the CBN streamlined all segments of the foreign exchange markets into the Investors and Exporters (I&E) forex window. This move entailed the removal of the rate cap on the naira at the official I&E market, allowing for a free float of the national currency against the dollar and other global currencies, with the aim of unifying and adopting a market-responsive exchange rate.
Following this adjustment, the rate rose to N742.3/$ from N463.38/$. However, with the devaluation, the naira’s exchange rate experienced a troubling decline in the second quarter, averaging N635.1 in June at the official market, down from N460.9/$ in March.
LCCI raised concerns that the floating of the naira exchange rate could potentially lead to further inflationary pressures. Nigeria’s inflation rate rose to a 17-year high of 22.79 percent in June, up from 22.41 percent in the previous month. The surge in inflation was primarily attributed to high food and energy prices, housing, clothing & footwear, transport, and imported inflation. The chamber foresees a potential increase in the inflation rate in the near term due to subsidy removal and the floating of the naira exchange rate.
As the conventional approach of increasing the monetary policy rate has proven to be inadequate in controlling inflation, LCCI emphasized the need for the government to provide robust support to critical sectors such as agriculture, power, and energy. Additionally, they urged the government to explore ways to enhance supply chains and mitigate production costs.
As the CBN considers the recommendations put forth by LCCI, stakeholders and economists will be closely monitoring the impact of potential policy adjustments on Nigeria’s economic stability and inflationary pressures.