Experts at the ongoing Global Trade Review West Africa have explained why the recent strengthening of the naira in the FX market has not affected prices of goods and services across the country.
Yinka Ogunnubi President of the Association of Corporate Treasurers of Nigeria (ACTN) said that the volatility in the exchange rate over the past two days is driving fear among producers whether the recent gain in the naira is sustainable.
According to him, the naira is appreciating too fast, and it is not good for long term planning. He noted that the many companies will sustain significant FX losses in Q1 over the volatility in the FX market.
- He stated, “The issue here is that can we sustain the level of price that we have right now. That’s why from the ACTN angle we are talking about price stability. If naira is going to be N1500 let it be for six months. Don’t let it be N1500 today, N1200 tomorrow and so on. You can’t plan and that’s why even as we speak today we see that the naira is appreciating, it’s appreciating too fast.”
- “When you sit down and look at the analysis, people are concerned saying should I reduce my costing rate to what the market is, but I’m scared that if I reduce my costing rate, what is my replacement cost? Will it go back up? That’s the reason why prices of things have not come down. Yes, the naira is appreciating but people are not in a place of comfort to say Yes, it is sustainable. The only answer to that is time. We have to wait it out for a few weeks or months. Is this sustainable over a long period? if it is, then you’ll see prices coming down.”
Furthermore, he asked the CBN to in a way address the sustainability of the naira in the FX market to give investors and producers confidence in their long-term planning which will see prices come down.
Also speaking, the Group Treasury Manager at Oando, Mopejuola Faloye noted that what is important is the steps and regulations the CBN will take in the six months waiting period for the naira’s stability by investors and businesses.
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Backstory
The naira has made significant gains in the FX market in the past few weeks strengthening from almost N1700/$ to around N1250/$ on the official market. This is as a result of the CBN’s actions during the period such as hiking MPR by 600bps, selling USD to BDCs at a reduced rate and selling and auctioning of T-Bills and OMO bills at over 20%.
Despite the CBN Governor’s stating that the hike in MPR is geared towards taming inflation, that has not happened as the latest inflation rate for the country increased to 33.2% in March 2024.
