A surge in the value of the naira has sparked a wave of optimism and a pointed question from Nigerian consumers: when will this translate to lower prices on everyday goods?
The naira saw a significant jump on Wednesday across both official and black markets after the Central Bank of Nigeria (CBN) announced it had successfully cleared all “valid” foreign exchange obligations owed to businesses and international entities.
The CBN confirmed clearing a backlog of $7 billion in forex requests, “fulfilling a key pledge” by Governor Olayemi Cardoso to stabilize the foreign exchange market and rebuild investor confidence.
The bank cleared all claims identified by independent auditors Deloitte Consulting as genuine, CBN spokesperson Hakama Sidi Ali said in a statement.
“The encumbrance to market confidence in the country’s ability to meet its obligations is now totally behind us,” the bank said. “Clearance of the foreign exchange transactions backlog is part of the overall strategy detailed in last month’s monetary policy committee meeting to stabilize the exchange rate and thereby curb imported inflation.”
The naira gained 5.7% to 1,492 against the dollar at the close on Wednesday, according to FMDQ, which tracks the exchange rate.
On the parallel market, it appreciated 9% to 1,410 on Thursday, according to Naira Rate, a handle on X, formerly Twitter, which tracks parallel market rates.
No price decline yet
The currency’s woes worsened last June after President Bola Tinubu initiated reforms to attract investors back by removing petrol subsidy and allowing the naira to trade more freely and converge multiple exchange rates toward a single rate. The move saw the naira plummeting steeply against the scarce dollar.
For a country that largely depends on importation, requiring dollars to buy everything from machinery to maize, the twin policies caused the worst cost-of-living crisis in the country in decades, with annual inflation reaching 31.7 percent in February, the highest in 28 years.
Major food items traded at unprecedented rates as the naira tumbled in February to a historic low of 1900 to a dollar. The prices of plantain and rice, two of the most popular foods in Nigeria, increased 170 percent and 99 percent respectively.
Millions continue to struggle daily to meet basic needs as the government’s response has remained dismal. The naira’s latest surge prompted calls online for prices to decelerate as Nigerians debated Thursday.
“Naira depreciates against the dollar by 8am and before 10am, prices of everything has increased,” an X user with the handle Pastor Who quipped. “Naira appreciates against the dollar for weeks and prices of commodities remain unchanged.”
Another user, Queen Aminat posted a handwritten message that says: “When the dollar was N1900 a bag of sugar was N75,000, now that (it) is N1450, a bag of sugar is N87,000. Is the dollar the real problem in Nigeria?”
While cautiously welcoming the naira’s improvement, traders argue that supply chain issues mean it would take time for the recent gains to translate to price reduction.
“The goods we bought when dollar was at 1800 are yet to arrive,” said one Onye Eze, implying prices will stay high for a longer time.
Naira expected to rise further
Analysts expect the naira to bounce back strongly before the end of the year. Last week, the investment bank Goldman Sachs predicted a significant appreciation in the coming months, with its analysts seeing the naira appreciating to 1,200 per dollar in the next year.
Adetilewa Adebajo, economist and chief executive at Lagos-based CFG Advisory, told Bloomberg the CBN’s clearing of the forex backlog “is a major confidence booster and signal to the markets that Cardoso is determined to see through his reforms not just with FX but monetary policy, inflation reduction and macroeconomic stability,”
The CBN has rolled out several measures this year, including raising the benchmark interest rate to 22.75 percent and banning street trading of foreign currency, in a bid to stabilize the naira.
The bank said the measures helped spur overseas remittances to rise more than fourfold to $1.3 billion in February from a month earlier, while foreign-investor portfolio asset purchases exceeded $1 billion in the month, bringing total inflows this year to at least $2.3 billion, compared with $3.9 billion for the whole of 2023, the central bank said this month.
Discover more from Pluboard
Subscribe to get the latest posts to your email.