Jun 10, 2025 (Daily Trust/All Africa Global Media via COMTEX) --
President Bola Tinubu set out to rescue the naira by eliminating frivolous demands for foreign exchange that had put pressure on the local currency. Pressured by such demands, the naira had been losing value on both the official and black markets. Now, as President Bola Tinubu celebrates his second year in office, many Nigerians are looking back at his rescue mission and are wondering whether his policies were in the right dosage.
Tinubu's economic policies, including exchange rate unification, have significantly impacted the naira. While the move was aimed at improving forex stability, it has also stoked an inflationary spiral not felt in decades. Now, Nigerians are asking: Is the naira on a path to recovery or further decline?
Acting under extraordinary pressure, President Bola Tinubu's administration took off with a definite mission. He was determined to realign the price system in the economy, beginning right from his inauguration day. While the president was still at Eagle Square signing his swearing-in papers, petrol station attendants all over Nigeria, on hearing the announcement of the end of the subsidy, quickly adjusted their prices. The price of petrol jumped from about N189 per litre to about N545.83 per litre. By July 18 that year, the price reached N617 per litre, an increase of 226 per cent. Prices of petrol and other refined petroleum products have continued that upward trajectory. The price of petrol rose to N1,200 in some parts of the country.
The price adjustment took a further leap after the CBN initiated exchange rate unification. Upon the announcement of the unification, the naira took a deep dive, declining by nearly 40 per cent on the first day. This poor sequence of policies unleashed a shock on the naira as prices jumped.
The making of an inflationary era
These two forces combined to produce a stubborn inflationary environment that Nigerians have been unable to extricate themselves from in the past two years. It created a cost-of-living crisis that the nation has not witnessed in decades. Transporters responded to the new petrol prices by adjusting their fares. Traders and producers alike, now paying higher fares for the same wares, raised their prices in turn. The chain reaction worked through the economy until prices of basic commodities rose beyond reach for most Nigerians. The impact of currency devaluation kicked in through the external sector, adding further pressure to the price level, as prices of local and imported goods rose.
With the elevated price level, CBN took up its duty of maintaining price stability in the economy. Thus, the fight against inflation through interest rate adjustment and manipulation of the money supply became the focus of its monetary policy. It made money both more costly and less available. It raised the MPR from 18.5 per cent in May 2023 to 27.5 per cent, where it has stayed since October 2024, while at the same time raising the banks' reserve requirements to curb their ability to lend money. However, the sustained hike in the MPR in the hope of taming inflation failed to douse the upward spiral.
Since then, inflation has remained high and sticky, while the CBN "Has kept monetary policy appropriately tight in response," says the World Bank. The global lender blames the persistence of inflation on "Entrenched inflationary expectations after a prolonged period of high inflation and inertia."
Food inflation surged higher within the last two years, highlighting the plight of Nigerians. From 24.82 per cent in May 2023, food inflation jumped to 40.66 per cent in May 2024, and reached a 20-year high of 40.87 per cent in June that year.
The inflation rate remained above the interest rate in the period from May 2023 until January 2025. The decline in the inflation rate came after the National Bureau of Statistics rebased its Consumer Price Index that month, which halted the upward trend in inflation. Yet the drop in headline inflation to 24.48 per cent that month, a change of over 10 percentage points from 34.8 per cent in December, raised questions over the appropriateness of the rebasing exercise. Even the World Bank has added its voice of caution: "Gauging inflation dynamics in early 2025 is difficult, given the consumer price index (CPI) rebasing, but price pressures remain high," it said.
The elevated cost level impacted markets and industries. With negative real interest (the difference between the interest rate and inflation rate) in the financial markets, savers fled to assets that could preserve value. So, fixed-income securities became a haven for investors. However, high interest rates plus the high cost of materials hit the real sector hard.
Similarly, the high MPR led to elevated borrowing costs for firms, with effective lending rates by the banks reaching, in some cases, as high as 40 per cent, according to business sources. All these translated into high prices for consumers, as producers passed on the rising costs to them.
Impact of forex policies on naira's value
Price convulsions in the energy sector also took place in the financial markets, once the CBN floated the naira. On the first day of the flotation, the local currency fell from an exchange rate of N471 to N755 to the dollar, at which it sold on the investors and exporters (I&E) window of the foreign exchange market. That represented a 37.6 per cent devaluation of the naira in one day. That was a great shock to the financial markets and the economy generally, and its impact was sure to reverberate throughout the economy within a short time.
However, that was just the beginning of a currency realignment that has touched Nigerians in different ways. On January 29, 2024, the currency exchanged at the rate of N1,348 to the dollar on the official window, showing the steady decline in the value of the naira. Compared to the rate of N471 on the day of naira flotation (June 14, 2023), that represented a depreciation of 65 per cent. On Saturday, May 24, 2025, the naira exchanged for N1,580.44 to a dollar. Compared with its value on the day of its flotation, this represents a higher level of loss of value: 70 per cent.
Has the government's forex policy stabilised or worsened the naira?
Before the deregulation of the foreign market, discussions within the financial market, including the CBN, tended to portray the parallel or black market as a tiny fraction of the nation's foreign exchange market. Some operators in the market had put the size of this market as low as five per cent of the total foreign exchange market.
Given that picture of the alternative market, it was not surprising that the drivers of the exchange rate unification believed that the convergence of the rates would take place at the lower end of the naira exchange rate spectrum. In other words, they expected the official market to swallow the black market and impose its rates on the market. The events of the last two years have shown who was right. The fact that this did not happen, but instead the official rate was adjusted to meet the unofficial rate, shows the true size of the latter.
Yes, the measures have brought stability to the naira, but at a higher exchange rate. This is perhaps what the monetary leaders had expected, based on their assessment of the relative sizes of the two contending ends of the market. This development has narrowed the gap between the official and parallel market rates.
However, further benefits of the naira exchange rate adjustment are beyond the realm of monetary policies alone. A deliberate effort to steer the economy along a different trajectory is imperative. That lies in the realm of political economy, which must combine with other measures already taken to address the question of productivity in the Nigerian economy.
COMTEX_466249000/2029/2025-06-10T08:33:14
by Vincent Nwanma
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