Expert speaks on future of Naira, explains why commodity prices are not reducing despite Naira gain

Financial analysts have stated that it will take time for gains in foreign exchange rates to be converted into lower commodity prices.

They said this amid several efforts by Olayemi Cardoso, the governor of the Nigerian Central Bank, to stabilise foreign exchange rates.

Recall that the price of goods is reported to have been consistently impacted by the devaluation of the Nigerian currency, which also played a significant role in the inflation rate, which peaked in February 2024 at 31.70%, up from 29.90% in January.

During its most recent meeting to control inflation, the Monetary Policy Committee (MPC) increased the monetary policy rate, which sets interest rates, from 22.75% to 24.75%.

Analysts comment

Analysts at the Financial Derivatives Company reported on March 28 that the naira had recovered 46.18% to N1,310/$ in the parallel market from its record low of N1,915/$ in February, according to TheCable report.

The report commended the CBN's efforts and stated that a lag effect would cause the rate increases intended to materialise.

It stated:

“The hawkish stance of the CBN stamps the commitment of the monetary policy authorities to rein in inflation and stabilise the exchange rates, especially as effective interest rates rise.

“Portfolio investments are springing back up, rising 41.03% to $2.3 billion in the first two months of 2024 compared to $3.9 billion in 2023.

“Though the desired outcome of relatively stable prices will take time to manifest due to lag effects, there is some respite for Nigeria’s macroeconomy if fiscal policy moves are consolidated to support these monetary measures in the short-medium term.

“Conversely, stock market activities are expected to be choppy in the coming weeks as fixed-income yields become more attractive.”

The company added that soon, interest rate increases are anticipated to stimulate investment inflows, mostly from portfolio investors.

In the near future, it stated that the private sector looking for loans for company expansion does not see much hope in the current high-interest rate climate.

Financial Derivative said:

“Essentially, the naira’s stability will continue amid higher interest rates. However, it will take time for exchange gains to translate to reduced commodity prices in the open markets, indicating a prolonged period of the cost-of-living crisis in the short term.”