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Why only dollar injection by CBN cannot stabilize the forex market—Observers

As the Central Bank of Nigeria (CBN) is set to pump another set of millions of dollar to the foreign exchange market between weekend and Wednesday, forex experts and development analysts have said that injection of dollar cannot do the magic alone.

Business Hilights gathered that the CBN has planned the release of an additional $350 million bringing the total to $570 million in this week alone to further crash the value of the Dollar. Earlier injections though have created momentary shocks within the circle of currency traders who are yet to recover from the losses some of them have suffered in the last two weeks owing to ephemeral appreciation of the Naira.

Weekend, the Acting Director, Corporate Communications at the apex bank Isaac Okorafor, hinted that considering what he described as improving reserve levels, CBN was determined to continuously make forex available to all genuine customers through their banks.

But analysts say pinning the recovery of the naira to availability of forex cannot do the job of stabilizing the economy.

According to Henry Boyo, a seasoned economist, trying to stabilize the forex using only monetary policy cannot work this time, rather a strategic synergy between the monetary and physical policies will work better.

Before now, some followers of the Nigerian economy have argued that there seems to be a wide gap or communication gap to be precise, between the two.

Explaining more on how to handle the forex crisis, Dr. Ikenna Nwosu, a development pundit said time has come for government to deepen provision of manufacturing and small business enabling environment so that ailing companies will stabilize while small businesses will consolidate.

He said concentrating on injecting dollar can only continue to give the economy short-lived results because currency speculators will not rest in their business of frustrating the naira.

Another expert who pleaded anonymity queried the performance of the presidential committee which recently announced a 60-day action on delivering ease of doing business challenge in Nigeria.

He said “it is not only forex that drive manufacturing, there are other indices including power supply, transportation, tax matters and credit facilities”.

The expert noted that “All efforts to stabilize the naira must work together with information sharing on both the side of monetary policy makers and fiscal policy makers”.

“The reason behind the poor results in forex crisis stemmed from lack of communication sharing and management between both policy makers.

“Otherwise, only CBN or the Ministry of Finance cannot resolve the forex crisis in isolation of the other and other considerable variable.

“Federal Government must give the fight for the restoration of naira a human face by outlawing Bureau D’ Change (BDC) so that forex can only be accessed from the banks.

He noted that continuous injection of dollar by the CBN without corresponding matching policy outlay from the fiscal policy framework can only continue to give short-lived results which Nigeria does not need in this circumstance.

The nation’s foreign reserve hit about $29 billion as at Tuesday, last week, a position that has given comfort to the CBN Governor, Mr. Godwin Emefiele, and his team to massively intervene in the forex market. With the current position, those hoarding the hard currencies would have to quickly off-load to reduce their losses.

Informed sources speak of the likelihood of a liquidity glut as banks are beginning to send out marketing executives to scout for customers to buy the dollar in an effort to avoid losses arising from the expected further appreciation of the naira.

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