Five weeks after the Central Bank of Nigeria (CBN) floated the foreign exchange market, manufacturers and labor unions are urging for measures to stabilize the exchange rate and prevent volatility in the forex market.
Following the CBN’s interventions at the Investors and Exporters window, the value of the naira had reached its lowest level at N853 to the dollar at the official window and N855 to the dollar at the parallel market. However, the naira opened stronger this week at N830 to the dollar.
While supporting the move to let market forces determine the Naira’s exchange rate, stakeholders advocate a mechanism to stabilize the rate. They suggest that periodic interventions in the forex market, when necessary, should be implemented by the CBN. These interventions would aim to boost supply and stabilize the exchange rate without fixing it artificially.
The decision to float the naira, introduced on June 14, 2023, under President Bola Ahmed Tinubu’s administration, granted banks autonomy to determine their foreign exchange trading rates. The move is seen as a positive step towards attracting investment, creating jobs, and boosting capital flows, thus inspiring investor confidence.
Despite the short-term depreciation of the naira due to demand backlog, stakeholders expect the rate to moderate as market conditions stabilize and move towards equilibrium. The CBN, in collaboration with the federal government, has introduced policies to attract foreign capital and diaspora remittances, aiming to improve Nigeria’s economic prospects.
Manufacturers anticipate import costs to rise, leading to economic uncertainties and exchange rate volatility. However, floating the exchange rate is also expected to enhance Nigeria’s export competitiveness and increase foreign exchange access and capital flows in the long run.
Organized labor expresses concerns about the potential impact on ordinary citizens, highlighting the need for mitigating measures from the government, such as controlling unnecessary spending and providing support in crucial areas like health, agriculture, education, and transportation.
Despite the initial forex instability and volatility, experts believe that maintaining the momentum of managed floating will lead to more stability in the forex market by the end of the year.
In summary, manufacturers and labor unions are calling for measures to stabilize the forex exchange rate in Nigeria to prevent volatility and mitigate the impact on businesses and citizens. The move to float the naira is seen as positive for the economy in the long run, but careful management and interventions may be necessary to ensure stability and confidence in the forex market.
