The reduced volatility of the naira, which has been more stable in recent months, has been identified as a factor contributing to the slowdown in imported inflation.
Analysts at FBNQuest said that the deceleration in imported food inflation could be linked to several elements. These include the decline in naira volatility during December, a reduced incentive to import food items due to the high cost of foreign exchange (FX), and the introduction of a 150-day import duty waiver on essential food items.
Although the overall impact of imported inflation on the headline reading remains less pronounced, the moderation is notable. Imported inflation eased to 41.29 percent year-on-year in December 2024, down from 42.29 percent in November, marking its first slowdown since September 2019.
Muda Yusuf, director and CEO of the Centre for the Promotion of Private Enterprise (CPPE), attributed the moderation in exchange rate volatility to a combination of regulatory reforms and periodic interventions by the Central Bank of Nigeria (CBN) in the forex market. According to Yusuf, the outlook for the exchange rate in 2025 leans toward further stability. This expectation is grounded in several factors, including the sustained improvements in foreign reserves, which currently exceed $40 billion. There has been an increase in reserve accretion driven by inflows from International Money Transfer Operators (IMTOs) and diaspora remittances. The CBN’s enhanced capacity to manage exchange rate volatility through periodic forex market interventions has also contributed to this outlook. The positive impact of $2 billion Eurobond proceeds on the country’s reserves and gains from the successful issuance of a $500 million domestic dollar bond further bolster optimism.
Additionally, the resolution of approximately $7 billion in legacy forex obligations by the CBN has provided relief. The import substitution effects of the Dangote and Port Harcourt refineries are expected to reduce demand pressure in the forex market, while the gradual recovery in the non-oil export sector is anticipated to positively influence forex inflows.
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The naira has maintained relative stability in the forex market, benefiting from significant inflows such as diaspora remittances, proceeds from a recent Eurobond issuance, and enhanced transparency measures introduced by the CBN. For instance, the implementation of the Electronic Foreign Exchange Matching System (EFEMS) contributed significantly to the naira’s performance. Within a month of EFEMS implementation, the naira appreciated by N125 against the dollar. According to CBN data, the naira strengthened by 8 percent, with the dollar quoted at N1,535 on January 3, 2025, compared to N1,660 on December 2, 2024, when EFEMS trading was officially launched.
On a daily trading basis, the naira exhibited stability in the official forex market as demand pressures eased. On Wednesday, the Nigerian Foreign Exchange Market (NFEM) reported the dollar at N1,550, only slightly lower than the N1,549 quoted on Tuesday, according to CBN data.
Authorised currency dealers quoted the dollar at a peak of N1,554 on Wednesday, improving from N1,560 the previous day. Meanwhile, the FX market recorded its lowest rate at N1,546 per dollar on Wednesday, compared to N1,545 on Tuesday.
In the parallel market, often referred to as the black market, the naira showed a slight depreciation. On Thursday, the local currency fell by 1.2 percent, or N20, to trade at N1,680 per dollar, compared to N1,660 on Wednesday. Despite this, the broader context indicates a trend of relative naira stability supported by strategic reforms, improved forex inflows, and targeted interventions by the CBN.
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