Nigerian economists are optimistic that the recent appreciation of the Naira against the U.S. dollar, if sustained, could significantly reduce the cost of imported goods and curb the country’s headline inflation, which stood at 33.88% in October 2024.

Gbolade Idakolo, Chief Executive Officer of SD & D Capital Management, and Prof. Godwin Oyedokun of Lead City University, Ibadan, shared these insights on Monday.

The Naira’s exchange rate improved to N1,538.50 per dollar on December 9, 2024, from N1,740 a month earlier. This represents a gain of N201.50 in the official market, despite slight fluctuations in rates at the start of the week.

This progress follows the Central Bank of Nigeria’s (CBN) introduction of the Electronic Foreign Exchange Matching System (EFEMS), aimed at fostering transparency and reducing market distortions. The platform has reportedly curbed speculative trading in the parallel market, bolstering confidence in the Naira’s stability.

Key Perspectives on the Naira’s Strengthening

Gbolade Idakolo described EFEMS as a “game changer” for its transparency and effectiveness in unifying forex bidding platforms. He emphasized that the system had diminished speculative activities in the parallel market, leading to a stronger Naira.

He highlighted the positive implications for importers, noting that the reduction in import duty exchange rates would decrease clearing costs, which are a significant factor in determining the prices of imported goods.

“The recent drop in exchange rates for import duties is a step in the right direction. Lower clearing charges will lead to reduced prices for imported goods, benefiting consumers,” Idakolo stated.

However, he urged the CBN to maintain strict regulatory oversight of banks, Bureau De Change operators, and other market players to ensure the sustainability of the gains.

Prof. Godwin Oyedokun attributed the Naira’s appreciation to increased FX inflows, reduced dollar demand, and strategic CBN interventions. He agreed that lower exchange rates for import duties could indirectly lower prices of imported goods, provided importers pass on the savings to consumers.

However, Oyedokun cautioned that several factors could limit the impact of the Naira’s appreciation on imported goods, including:

• Global supply chain disruptions that may inflate costs.
• Domestic economic conditions, such as inflation and government policies.
• Importer behavior, as some importers might prioritize profit margins over price reductions.

To sustain the Naira’s strength, he advised the CBN to continue promoting macroeconomic stability, attracting foreign investment, and addressing structural issues like corruption, insecurity, and inadequate infrastructure.

“While the recent Naira appreciation is encouraging, it may be temporary. Strategic and consistent interventions by the CBN will be crucial to sustaining this progress,” Oyedokun concluded.

Outlook

The economists agree that the Naira’s appreciation offers an opportunity to alleviate inflationary pressures, particularly in import-dependent sectors. However, sustained gains will require consistent policy measures and vigilance from the CBN to ensure long-term economic stability.