Naira’s recent fluctuation against the dollar will not help to reduce the prices of goods and services in the short term until FX rate stability is relatively achieved, economic analysts and business owners have said.
The naira had earlier this week reversed its five-day winning streak as increased demand for the dollar among end users led to a depreciation of the local currency across various segments of the FX market. This shift had a noticeable effect on the naira’s performance.
Amina Adeshina, a business owner, is also optimistic that the gains may reduce landing and shipping costs of her imported goods, but only if persistent. “Beyond the costs of goods, the exchange rate affects the landing and shipping costs, so, it will reduce the end prices of goods if the gains persist”. “But the prices didn’t shift this week, because I’m still selling old stock,” she added.
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Segun Sopitan, Principal Partner, Woodridge and Scott Consulting stated that the recent naira rally won’t reduce the prices of goods and services until business owners are certain that the gains are stable and won’t affect future costs.
“If there’s a N200 gain in the value of the naira, and it is stabilised, then there’ll be a reduction in the prices of goods and services only after the players in the system are certain that it is stable because market players plan their purchasing, imports and contractual obligations in foreign currencies ahead of time,” he said.
Chukwurah Afamefuna, Research Analyst at Capital Bancorp plc, attributed the earlier gains to the inflow of Eurobond proceeds, which caused a massive selloff of the dollar. However, he stated that these gains may not affect the prices of goods and services especially imports.
“At the immediate term spilling into Q1 2025, there will be limited or no significant changes as existing inventories and import contracts were likely priced at older rates,” he said.
He further added that the prices of goods and services may decline following sustained gains of the naira against the dollar.
“If the naira sustains this upward momentum, we may experience a moderate decline in inflation rates, particularly in the imported goods segment, but this is largely dependent on sustained gains, which will give businesses more confidence to adjust prices,” he added.
The local currently have been on the fluctuating path against the greenback since this week following previous gains. The naira appreciated on the parallel market, trading at N1,680 per dollar on Thursday, from the N1,715 recorded on Wednesday.
In the official market, authorised dealers quoted the dollar at a high of N1,550 on Thursday, which was stronger than the N1,557 recorded the day before. Meanwhile, the market saw the lowest bid of N1,515, the same as Wednesday’s trade.
Speaking on the cause of the reversal in the naira gains, Sopitan added that speculators may have a hand in it, but it is largely due to natural currency trends.
“It is due to speculators and just the natural reversal that currency rates suffer during major trend shifts. When a significant price movement happens, speculators will try to benefit by buying the new lows so they can sell when the brief reversal happens, but these types of movements are usually temporary,” he said.
Sopitan remarked that the recent gains of the naira against the dollar will only be stable if the CBN addresses the issue of dollar supply.
“The gains gotten will be insignificant because the exchange rate today isn’t predominantly determined by speculators but by the simple forces of demand and supply. The CBN has to improve the market’s supply side, for the naira to gain sustainably,” he said.
“The speculators in the market are already pushing back, but it might be temporary and the naira may stabilise at N1550/$ from last week or the N1750/$ range it is today,” he added.
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“The naira has gained, but we’re still paying exorbitant amounts at the ports,” says Mayowa Shittu, a retail goods importer.
“There has been no difference in the past week because the prices I pay rose by 60 percent in the last 5 months, and the recent gains were too small to reverse that,” he added.
Akin Ogunsola, an Abuja-based economic analyst, remarked that the CBN’s Electronic Foreign Exchange Matching System (EFEMS) can bring the needed stability to the FX market, but the parallel market may reverse the gains seen.
“The EFEMS will stabilise the market, but the parallel market is a loophole to that. More persons have now shifted to the parallel market for hoarding and speculation,” he added.
“Recent gains in the naira can be tied to diasporan remittances and the CBN EFEMS, but the remittances won’t last beyond the holiday season. Even if factors change, it’s unlikely that there would be significant changes in the exchange rate,” Shuab Idris, economic analyst and CEO of TimeLine Consults said.
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