In what may be deemed an act of God, the naira has been up against the dollar. Compared to over 1500 per dollar in February, the naira closed at 1278 on April 2, according to the Lagos-based FMDQ exchange that tracks trading data. Yet the naira’s recovery is no divine feat. A little more than a week ago, the Central Bank of Nigeria agreed to resume selling dollars to Bureau de Change (BDC) agents. In a letter dated March 25 and addressed to the union of black-market operators, the apex bank warned against selling the dollar beyond a spread of 1.5 percent, pegging the dollar sale at 1251/$.
Since then, Nigeria’s native currency has soared by 11.4%, becoming one of Africa’s top-performing currencies in recent times. If the naira has recorded any growth since March, it’s hardly brought any succor to Nigerians, who still grapple with persisting inflation. With no corresponding decrease in the cost of goods and services, Nigerians are even more frustrated.
“They’ve been working to stabilize the naira, but the price of goods is not reducing on the market,” Chelsea Nwachukwu, a remote worker living in Lagos, lamented. “It’s frustrating.”
Chelsea’s anxieties reflect a national attitude towards the recent gains of the currency. Although the CBN may have done a stellar job yanking the Naira from an all-time low of 1900/$, the impact of such a superhuman feat remains to be seen.
The law of gravity stipulates that what goes up must come down. However, not in the Nigerian market, where the cost of goods, once risen, never falls in price. This underlies the continuing hike in inflation despite the currency gains on the exchange markets.
“We bought most of these goods when the [exchange] rate was high,” said Ebuka Kingsley, who runs a boutique in the city of Calabar. “So that’s why the prices have hardly changed from what they used to be.”
Yet a more plausible reason for the persisting hike may be fear of an imminent slump in the value of the naira. Experts reckon that the CBN’s strong-arm tactics to reverse the freefall of the naira are largely unsustainable and come at a cost. The dollars being sold to currency changers are sourced from the country’s foreign reserves, partly funded by dollar receipts from the sales of bonds and Treasury bills. Hence, with the country’s heavy dependence on dollar-denominated imports, most Nigerians reason that the local currency should be back in the doldrums again.
Therefore, any depreciation or volatility in the naira can lead to cost-push inflation, as imported inflation gets transmitted to domestic prices. Moreover, exchange rate uncertainties can undermine investor confidence, hamper long-term economic stability, and exacerbate inflationary pressures.
The exchange rate remains far higher than it was at the beginning of the Tinubu administration, the recent interventions of the Central Bank of Nigeria at bolstering the currency are commendable. Still, it remains to be seen how long the naira can remain at this rate before it slumps back to its record lows again.
The naira has shown significant recovery against the dollar, improving from over 1500 per dollar in February to 1278 on April 2, as per the FMDQ exchange. This recovery followed the Central Bank of Nigeria's March 25 decision to resume dollar sales to Bureau de Change agents, setting a sale price of 1251 per dollar and limiting the spread to 1.5%. Consequently, the naira surged by 11.4%, becoming one of Africa's top-performing currencies.
However, this currency gain has not eased the cost of living for Nigerians, still facing high inflation. The prices of goods and services remain stubbornly high, contributing to widespread frustration. The currency’s future remains uncertain due to heavy reliance on dollar-denominated imports and the fact that the dollars sold to currency changers come from the country’s foreign reserves. This volatility could lead to further cost-push inflation and undermine investor confidence.
Despite the Central Bank of Nigeria's efforts, the sustainability of the naira’s strength is questionable. The exchange rate continues to be much higher than at the start of the Tinubu administration, and the naira may face depreciation again, bringing further economic challenges.
