Rather than protecting consumers — the justification used by President Muhammadu Buhari in rejecting calls for a weaker currency — the policy threatens to stoke inflation as it boosts import costs and pushes the naira to a record low on the black market.
[pro_ad_display_adzone id=”70560″]Rising food costs, which make up about half of the consumer price index, have pushed inflation to 9.6 percent in January, the same rate as the previous month and the highest level in three years. Calls to
Ten of the 12 categories of consumer prices surveyed by Standard Chartered Plc in its Consumer Price Tracker showed increases in January from the previous month, according to Razia Khan, chief Africa economist at the London-based lender. That shows “prices are rising, despite attempts to keep the official Nigerian naira exchange rate unchanged,” she said in an e-mailed note to clients.
The central bank in Africa’s largest economy has effectively pegged the naira at 197-199 per dollar since March by restricting foreign-currency supply, hurting businesses. That’s forced them to seek currency on the parallel market, where the naira reached a low of 340 against the dollar on Monday.
Economic growth, which is estimated to have slowed to 3 percent last year, the lowest since 1999, is set to remain subdued.
“Given the drag on economic growth from the foreign-exchange restrictions in place in order to keep the naira steady, there is a big economic cost to avoiding devaluation,” said William Jackson, the London-based senior emerging markets economist at Capital Economics.
