Concerns as naira weakens to N1,645/$ amid fuel price hikes

The impacts of the hike in the pump price of petrol seem to be taking a toll on the naira as the national currency tumbled to N1,645 to one dollar at the parallel market, yesterday.

This comes as most roads and secretariats in the Federal Government, Abuja and other cities recorded scanty activities yesterday.

At the federal secretariat, the once bubbling sprawling complex was scanty, starting from the motor park that is usually filled with workers’ and contractors’ vehicles.

Indeed, yesterday, not only were the roads to the secretariat near-empty, but sellers wore long looks as they stared at their unsold wares.

At the unofficial market, the naira, which exchanged for N1,640 on Wednesday, further rose to N1,645 as of Thursday afternoon.

At the official window, the naira dipped even further against the dollar.

On September 4, 2024, data from the Nigerian Autonomous Foreign Exchange Market showed that the local currency traded at N1, 625/$1, down from N1, 611/$1 on Tuesday.

Though it has been quiet in the last few weeks, the Central Bank of Nigeria (CBN) under Yemi Cardoso, has been selling FX to qualified banks as well as Bureau de Change outlets to shore up the value of the naira.

On August 7, 2024, the CBN offered $876 million to fulfill bids submitted by customers at an auction concluded on Wednesday, August 7, 2024.

Yet in another step, the CBN introduced an additional mechanism through the Retail Dutch Auction System (RDAS) to directly facilitate FX sales to end users.

This approach aimed to foster a more transparent market, reducing information asymmetry and supporting price discovery.

The apex bank maintained that this step complements the two-way quote system deployed over the past few months to enhance liquidity in the interbank market, through which over $305 million of foreign exchange has been sold to authorised dealers in the last three weeks.

Despite the position of the CBN that the foreign exchange market is showing signs of improvement and increased depth, with more robust and diversified sources of liquidity contributing to the sustained convergence of exchange rates across all segments of the market, moving beyond 1,600 to the dollar is discomforting.

Going by this development, there are fears that the increase in the pump price may further spike the prices of goods, especially food items.

A retired banker, Ande Mohammed, said the fear is genuine, saying: “As a country, we know that exchange rates and pump price of petrol are major determinants of prices. This increment, which is about 30 per cent, will likely impact the prices of food items. Prices may or may not go up. Inflation, which we thought, reached its peak, may likely spike again.

However, I do not expect any major spike in the August figure. The upward adjustment may reflect in the September figure when it is released next month,” he stated.