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Restore liquidity to forex, boost investors’ confidence—Yusuf

The Director General, Lagos Chambers of Commerce and Industry (LCCI), Mr. Muda Yusuf has called on the Federal Government to restore liquidity to the foreign exchange market in order to bring back investors’ confidence in the economy.

He argued that there was the need to review trade policy to enhance disposable income and private sector investment spending.

In his submission at the seventh annual conference of the Institute of Capital Market Registrars themed, ‘Understanding monetary and fiscal policies in the management of the economy – issues, challenges, analysis and the impact on the capital market,’ LCCI boss made it clear that the current monetary policies of the Federal Government are militating against the growth of the capital market.

He said the high cost of borrowing as represented in Treasury bill rate and the bonds was crowding out the private sector in the financial market, thereby affecting the growth of investment and financial intermediation.

Besides, the tight monetary policy in the form of high cash reserve ratio (30 per cent), liquidity ratio(22 per cent), monetary policy rate (12 per cent) has led to an increase in interest rate and better returns on investment in the money market.

In his words; “This is a disincentive to investment in the capital market. High-interest rate is not good for firms in the real sector, many of which are listed on the Nigerian Stock Exchange. This has implications for return on investment for those firms and by extension ROI on investment on those equities”.

Only yesterday, international rating agency, Moody’s Investors Service, has said the scarcity of United States dollars remained a key challenge to companies operating in Nigeria.

It also said foreign capital inflows into Nigeria would unlikely rebound strongly due to the existence of a huge gap between the parallel and official markets rates of the dollar.

In a new report released some hours ago, the rating agency said investors would not invest capital into Nigeria as long as there was uncertainty around the propensity for a further devaluation of the naira against the US dollar.

The report entitled, ‘Corporates Nigeria: US dollar scarcity remains key challenge to improvement in the corporate sector,’ quoted the Vice-President, Moody’s, Aurélien Mali, as saying that “Nigeria is still undergoing a severe economic realignment to adjust to lower oil prices and the knock-on effect on its US dollar oil exports, which have led to reduced US dollar supply and lower GDP growth.”

Moody’s Assistant Vice-President and the report’s co-author, Douglas Rowlings, was quoted to have said, “The naira’s depreciation by nearly 60 per cent in June partially cleared accumulated US dollars demand and stabilised foreign currency reserves. However, access to the US dollars through official channels remains challenging for some companies.”

The agency expects foreign investment inflows to continue to be constrained until the parallel market rate of the naira against the US dollar moves closer to the official rate.

The report was hopeful that the supply of the US dollars will improve over time as real growth rates pick up, which will be supported by investment by multinational corporates wishing to further strengthen their domestic position in Nigeria or establish a presence in the country.