Hope rises for bread consumers as flour prices fall

…External reserves hit $29bn

With the drop in the price of flour to N10,500 per bag, it is expected that the prices of some staple foods, especially bread, may begin to slide, according to analysts at Financial Derivatives Company Limited.

Another good news for the economy is that oil production now up to 2mbpd, brightens the prospect of more accretion to the nation’s foreign reserves. The report by FDC shows that average crude price for January and February is $55.63pb. It was 18.51 percent above quarter three average and 74.4 percent above the January 2016 average.

Also, core and month-on-month inflation recorded a downward trend, according to the FDC report.
The foreign reserves on Thursday, rose to a record high in 12 months, to $29.00 billion, following oil price increase and relative stability in the Niger Delta. The price of Brent crude, as at February 16, 2017 stood at $55.99 per barrel.

The development further affirms the projection by analysts in the financial services sector, that the external reserves would grow to $30 billion in March this year.

Godwin Emefiele, governor of the Central Bank of Nigeria (CBN) had in January, at the first Monetary Policy Committee (MPC) meeting in the year, said rising oil prices have seen foreign exchange reserve inflows through the CBN rise by well over 82 percent, helping push the external reserves to a current high of $28.9 billion in January.

The nation’s reserves recorded their highest level in the last three years on May 2, 2013 rising to $48.9 billion, when the price of crude oil was $103.03 per barrel.

The pressure on the naira continued on Thursday at the foreign exchange market. The cost of one dollar, which went for N191.00k at the end of December 2014 at the parallel market, is now N510.00k per dollar (as at Thursday) at the same market segment.

The local currency remained stable at N305.50k on Thursday at the official inter-bank spot foreign exchange market, data from FMDQ show.

The nation’s currency faces fresh pressure on the parallel market with dollar supply coming short of demand by persons seeking currency to pay school fees abroad, as the Central Bank continues to ration forex to critical sectors of the economy.

Taiwo Oyedele, PwC head of tax and regulatory services West Africa Tax Leader, said high foreign exchange reserves give a positive signal about the financial strength of the economy and should help improve investor confidence.

However, Oyedele strongly believes that the real benefit will only be realised if it is complimented with other factors such as sound exchange rate management, better investment climate, ease of doing business, security of lives and property and overall economic well being.

Charlie Robertson, global chief economist and head of macro strategy at Renaissance Capital, said in his emailed response that it may make the CBN more comfortable about allowing greater exchange rate flexibility.

“There has been a positive accretion in foreign reserve, at the same time we are not paying our bills. In terms of forward provision, at the last count, we are about $4 billion of unsettled forward contracts. If we are to settle that immediately, that will take about $4 billion from the external reserve and its back to less than $28 billion without including the new demand for dollar this month, quarter and the rest of the year”, Ike Chioke, managing director, Afrinvest (West Africa) Limited said.

“The challenge is that we have not got to the ideal situation where there is enough confidence built into the country. Our governance framework, our policies and economic turnaround plan that investors find opportunity to come into the country”, he added.