… Rice price could drop to N70,000 by September
The naira will recover from N1,700 to N1,500 in September, as the 50-basis point hike in interest rate is expected to boost Foreign Portfolio Investment (FPI) in August, according to Bismarck Rewane, managing director/CEO of Financial Derivatives Company Limited.
After the two-day Monetary Policy Committee (MPC) in Abuja on Tuesday, the apex bank raised the monetary policy rate (MPR), also known as the benchmark interest rate, by 50-basis point to 26.75 percent from 26.25 percent in May 2024, to rein in inflation and foster a favorable climate for foreign investment.
On Wednesday, the naira closed at N1,586.71 per dollar, losing 2.4 percent of its value compared to N1,548.76 closed on Tuesday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to the data from the FMDQ Securities Exchange Limited.
The dollar supplied by the willing buyers and willing sellers declined by 39.12 percent to $171.03 million on Wednesday from $280.92 million recorded on Tuesday.
At the parallel market, also known as the black market, the naira lost N5 as the dollar was quoted at N1,585 on Wednesday as against N1,580 on Tuesday.
“Higher interest rates will increase savings and help moderate inflation, the naira will recover from N1700 to N1500 in September,” he said during an interview on Channels Television.
Rewane projected a downward trend in Nigeria’s inflation rate, which, after a sharp rise, is expected to fall from 34.19 percent to around 32 percent, and potentially to 20 percent by year-end. Key to this shift are reduced logistics costs, with notable contributions from Dangote’s initiatives.
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Diesel prices have significantly dropped from N1700 to N1180, influencing public transportation and the movement of goods. “This reduction is a crucial relief,” Rewane noted, emphasising its positive impact on the economy.
The newly implemented minimum wage of N70,000 also plays a part in easing inflation. However, Rewane warned that while this wage increase is beneficial, the real test will be its effect on the average Nigeria’s purchasing power.
The country’s import program, described by Rewane as both a potential savior and a poisoned chalice, is set to influence commodity prices. Rice, for instance, currently priced at N82,000, is expected to drop to N70,000 by September. Similarly, wheat flour could fall from N59,000 to N50,000, and beans from N150,000 to N110,000.
Comparative data from the last quarter shows a mixed bag: rice prices have slightly increased by 2.4 percent from N80,000 to N82,000, while beans surged by 36 percent from N95,000 to N150,000. Palm oil prices rose by 9 percent from N5500 to N6000, and eggs saw an increase from N3500 to N5500 depending on size. Noodles experienced a modest rise of 4 percent, and yams went from N10,500 to N18,000.
Rewane anticipates that these prices will decline with the influx of imported food, provided market manipulation is avoided. A lag between policy implementation and effect is expected, but by September, a bag of rice could decrease to N70,000, beans to N110,000, and maize from N105,000 to N95,000, potentially reaching N50,000.
For the elite, international school fees will remain elevated, and air travel costs will stay flat following IATA’s rate adjustment to N1690 per $1. Medical tourism costs are also projected to increase.
Transport fares are expected to rise, with routes like Obalende to Victoria Island increasing from N300 to N400. House rents may also see a 20 percent hike.
As the year progresses, food import duties are anticipated to moderate inflation. Dangote’s PMS initiative, launching on August 15, will ensure supply but not necessarily stabilize prices. The new minimum wage will have a marginal impact on inflation, while higher interest rates could encourage savings and help control inflation. The naira is expected to recover from N1700 to N1500 by September.
