The rebound in naira exchange rates against the dollar and other global currencies is gradually leading to the drop in some commodities prices in the domestic market, analysts at Financial Derivatives Company Limited, have said.
In an email report to investors released at the weekend, Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, said the naira at both the official and parallel markets rebounded to N1,260/$ and N1,135/$, respectively.
As widely expected, the prices of some food items have begun to adjust in line with the sustained naira appreciation.
“Notably, prices of some commodities like rice (50kg) decreased by 5.26 per cent to N90,000, sugar fell by 5.88 per cent to N80,000/bag, flour experienced a decline of 7.81 per cent to N59,000/bag, and noodles (carton) witnessed a significant decrease of 15.22 per cent to N7,800/carton,” he disclosed.
Rewane explained that as more businesses begin to stock up their inventory, prices will likely reflect the naira appreciation.
“In the short term, we anticipate further moderation in commodity prices as the naira sustains recovery due to improved forex supply. Consequently, inflationary pressure is expected to slow in the coming months,” he stated.
The Central Bank of Nigeria (CBN’s) recent foreign exchange (FX) market sanitization policy, has put the naira on a steady path to recovery since hitting an all-time low of N1,915/$ in February at the parallel market.
The rebound in exchange rates was also supported by the boost in forex inflows and the CBN’s sale of dollars to the Bureaux De Change (BDCs. Foreign portfolio investments have climbed to $2.3 billion in just the first two months of 2024.
Rewane said the apex bank achieved a significant milestone by successfully clearing a longstanding burden of its verified foreign exchange backlogs totaling $7 billion.
This achievement fulfills a commitment made by CBN Governor, Olayemi Cardoso, who vowed to address the backlog issue.
The CBN clearing the backlog is supporting the bank’s ongoing policy stance to stabilize the exchange rate, curb imported inflation, and boost economic confidence.
“The recent clearance of the FX backlog by the Central Bank of Nigeria (CBN) marks a pivotal moment for the nation’s economy, carrying profound implications for several key macroeconomic indicators. By prioritizing the resolution of this backlog, the CBN has taken a decisive step towards rebuilding trust and instilling confidence in Nigeria‘s economic outlook,” Rewane said.
“This strategic move by the CBN holds the promise of alleviating exchange rate pressures and curbing inflationary tendencies. As the backlog is addressed, the foreign exchange market is expected to experience enhanced liquidity, easing the strain on exchange rate dynamics. Consequently, this development is anticipated to mitigate inflationary pressures, as improved access to foreign currency facilitates smoother import transactions and price stability,” he further stated.
President, Association of Bureaux De Change Operators of Nigeria (ABCON), Dr. Aminu Gwadabe, forecasts that in the ongoing market development shows a willingness of the market to correct itself with a realistic price discovery as naira continues to appreciate further across market with the increasing sources of foreign exchange inflows aided by the CBN policies.
“We also want to pledged our continuing support to the CBN proactive and effective policies and meant to address volatility and headwinds in the forex market. As a self regulatory body, ABCON is currently engaging all stakeholders and players in the retail end market to deepen, liberalize, democratize and centralize the retail end segments of the market for price discovery, market efficiency, transparency, accretion of buffers and healthy balance of payments,” Gwadabe said.
“We applaud the CBN management for the reconsideration and reinstatement of the BDC sub-sector as third leg of the forex market to put hoarding and speculation under check and we have seen faster results than expected,” he stated.
