From the price of the naira, that is, the exchange rate, to the prices of goods and services, there is currently a waiting game that is helping to prevent these prices from coming down. This is a waiting game birthed by business uncertainty in a difficult-to-predict macroeconomic environment. That is why anytime you go to the market the price of an item you bought just a few days ago has risen.
Those engaged in this waiting game are many and varied. They want to see who will first bring down his or her price. They are in the currency market, import business, and even in the product market.
Currency speculators, including sellers of foreign currency in the parallel market, are holding their breath, hoping that the CBN does not make good on its promise to flood the market with the promised $10 billion. If this happens, the naira exchange rate will crash, as the government and the central bank have promised.
This will hurt the currency dealers because right now many of them are holding large amounts of what they call “old dollars”. This has nothing to do with the date when the greenbacks were printed. Rather, it refers to dollars they bought a couple of weeks ago when the naira hit its all-time low, trading at about N1,300/$. As usual, many of them bought dollars at rates as high as N1,250, hoping the decline in the value of the naira would continue so they could reap the rewards of holding an asset that is appreciating.
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Then the CBN spoke. And the Presidency also, warning that speculators would soon have their fingers burnt because the liquidity issue in the market would soon be addressed. Once the market is reflated and liquidity improves, then by the simple law of demand and supply, the price of the scarce commodity, the dollar, now supplied in abundance, would simply fall. While the dealers continue to hold onto such volumes of dollars, this will help to sustain the naira-dollar rate where it is now, given that the condition in the official market is far from where it should be.
However, the expected rise in the exchange rate didn’t continue. The effect of the announcement, the promise of the $10b kicked in; the market reversed course, and the naira appreciated, in both markets. Right now, it is somewhere around N1105 to a dollar, down from the all-time low, but still away from converging with the official rate.
This is where many of them are playing now, buying and selling at the current exchange rate, but still clinging to the ‘old dollars”.
In the same way, many of their customers are waiting. Several people who normally patronise the parallel market have also adopted the wait-and-see attitude, as they wait to see if the dollar rate would change in their favour.
On the official market, according to market sources, many of the individuals who buy FX from it now are those who are in emergencies, for example, those who need immediate medical attention abroad and those who pay school fees. “Many are just waiting to see if the dollar rate will come down. They are waiting to see if there will be a miracle from the CBN,” one businessman said. However, the delay in the manifestation of this expectation is pushing many back to the parallel market.
Let’s go down to our brothers who import from China, other Asian countries, as well as Europe, North America, etc. Right now many of them are carrying large consignments of goods they imported at the old dollar rates, perhaps not at the peak of N1,300 per dollar, but somewhere clearly higher than the current rates at NAFEX.
Like their counterparts in the currency market, they too cannot offload their wares at low prices because doing so will also hurt them. Theirs is even a peculiar case, since they bought in dollars and are selling in naira, which, unfortunately, has been losing value. So, to break even they need to sell at higher rates in a currency that is depreciating to be able to cover what could be called exchange rate-induced losses.
How high their prices need to rise could depend on individual circumstances and variables, including the cost of raising such funds at home here, mostly from the parallel market. This explains, at least in part, the reason such importers have refused to drop their prices even after the fall in the dollar rate. Doing so would amount to buying high and selling low. That is why when you complain about high prices, the sellers tell you, “It is the dollar”.
The conditions of such importers are similar to those who borrowed funds in dollars but have to generate their revenues in naira selling their goods. With the fall in naira value, they will have to generate higher revenues in the local currency that, when converted into dollars, will be enough to repay the loans at the current rates.
Imagine someone who borrowed $400,000 when the exchange rate was, say N460/dollar. Now, at a rate of N839.48/$ at the NAFEM on Monday, November 13, or even the NAFEX rate of N795.41 closing rate on the same day. While NAFEM replaced the Investors’ and Exporters’ rate, the NAFEX rate is more of the government’s official rate. To raise the loan amount, plus of course, the interest amount now at either of these rates cannot be an easy task for the borrower.
So, the reality is that it is not yet Uhuru for anyone operating in the economy right now, both consumers and producers. Everyone seems to be waiting for the promised liquidity increase in the foreign exchange market. Its delay is seen as the reason many people are still patronising the parallel market.
Clearly, we are in a high-cost environment, which has been heightened by recent fiscal and monetary decisions. With the Monetary Policy Rate at 18.75 per cent and inflation at 26.72 per cent, the consumer is certainly in for prices reaching for the roof. And they are looking for the powers that will bring down the prices.