Emmanuel OchayiFinancial Derivatives Company, led by renowned financial expert Bismarck Rewane, has indicated that the gains in foreign exchange rates won’t swiftly translate into reduced commodity prices, despite efforts to stabilize the exchange rate.
Olayemi Cardoso’s tenure as the governor of the Central Bank of Nigeria (CBN) has been marked by concerted efforts to stabilize FX rates. However, the persistent depreciation of the Nigerian currency has continued to impact commodity prices, contributing significantly to the inflation rate, which surged to 31.70 percent in February.
In response to inflationary pressures, the Monetary Policy Committee (MPC) raised the Monetary Policy Rate (MPR) from 22.75 percent to 24.75 percent at its recent meeting.
Financial Derivatives, in its report released on March 28, noted a rebound of the naira by 46.18 percent to N1,310/$ from an all-time low of N1,915/$ in February at the parallel market. Despite this positive development, the company emphasized that the effects of these changes would take time to materialize due to “lag effects.”
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“The hawkish stance of the CBN underscores the commitment of monetary policy authorities to curb inflation and stabilize exchange rates,” stated Financial Derivatives. “However, the anticipated impact on commodity prices will be delayed, necessitating sustained fiscal policy support to complement these monetary measures.”
While acknowledging the expected support for investment inflows following the interest rate hike, Financial Derivatives cautioned against its potential adverse effects on private sector credit availability for business expansion in the short term.
“The current high-interest rate environment, though essential to combat inflation, poses challenges for private sector growth,” remarked Financial Derivatives. “Balancing these considerations will be crucial in preventing economic overheating amidst rising poverty and dwindling productivity.”
The company emphasized that despite the stability in the naira’s value, the process of reducing commodity prices would be gradual, signaling a prolonged period of the cost of living crisis in the short term.
Regarding the recent appreciation of the naira, Financial Derivatives highlighted the importance of sustaining favorable policies to maintain currency stability.
“While the recent gains in the naira are promising, sustaining this momentum requires continued adherence to prudent economic policies,” remarked Financial Derivatives. “With foreign portfolio investments on the rise, Nigeria must remain steadfast in its commitment to favorable economic reforms.”
However, Financial Derivatives underscored the need for patience as the effects of exchange rate gains unfold, urging policymakers to maintain a delicate balance between inflation control and sustainable economic growth.
