Nigerian economists have expressed optimism that the Naira’s recent appreciation against the dollar could significantly reduce the prices of imported goods, potentially easing the country’s headline inflation, which stood at 33.88 percent in October 2024.
In separate interviews with journalists on Monday, the Chief Executive Officer of SD & D Capital Management, Gbolade Idakolo, and Lead City University professor, Godwin Oyedokun, highlighted the potential long-term benefits of the Naira’s strengthening.
Exchange Rate Gains
The Naira settled at N1,538.50 per dollar on Monday, December 9, 2024, marking a significant improvement from N1,740 on November 9, 2024. This represents a month-on-month gain of N201.5 at official markets and N110 in the parallel markets.
Despite a slight depreciation of N3.5 and N30 to begin the week, experts attribute the currency’s overall improvement to the Central Bank of Nigeria’s (CBN) launch of the Electronic Foreign Exchange Matching System (EFEMS).
EFEMS: A Game Changer
EFEMS is designed to eliminate market distortions and improve transparency in the foreign exchange market. Gbolade Idakolo described it as a transformative tool that has curtailed speculative activities in the black market, bolstering the Naira’s value.
“The newly introduced EFEMS platform by CBN for centralized forex bidding is a game changer. It has eliminated manipulations, ensuring transparency by showing all quotes for both buyers and sellers,” Idakolo said.
He emphasized that the platform has reduced unnecessary speculations that previously weakened the Naira. “With proper monitoring, the CBN can sustain this trend, leading to reduced import duty rates and, consequently, lower prices for imported goods,” he added.
Impact on Imported Goods and Inflation
According to Idakolo, reduced clearing charges for imported goods, a key cost component, will lower overall prices, benefiting consumers.
Similarly, Prof. Oyedokun highlighted how a stronger Naira could indirectly reduce the cost of imported goods, provided importers pass on the savings to consumers. However, he cautioned that factors like global supply chain disruptions, domestic economic conditions, and importer behavior could temper the benefits.
“Importers may choose to increase profit margins rather than reduce prices, which could delay the impact on consumer costs,” he noted.
Sustaining the Naira’s Gains
Both experts agree that sustaining the Naira’s appreciation requires sustained efforts by the CBN. These include maintaining macroeconomic stability, attracting foreign investment, and addressing structural challenges such as insecurity, corruption, and inadequate infrastructure.
“The exchange rate is influenced by various factors, and the Naira’s appreciation may be temporary. Continuous monitoring and strategic interventions are necessary to ensure its sustainability,” Oyedokun remarked.
The Bureau Newspaper will continue to monitor developments on the Naira’s performance and its implications for Nigeria’s economy.
