Foreign Exchange Stability Seen as Key Driver of Further Inflation Decline – Report

A new economic report has projected that Nigeria’s inflation rate may continue on its downward trajectory in the coming months if the relative stability being witnessed in the foreign exchange market is sustained. The analysis, which reviewed recent macroeconomic indicators, highlighted how improved foreign exchange liquidity, reduced volatility in the naira, and stronger monetary policy coordination are already easing cost pressures across key sectors of the economy.

The report comes shortly after the National Bureau of Statistics (NBS) announced that headline inflation dropped for the fifth consecutive month, driven largely by moderating food and core inflation. According to analysts, one of the underlying factors supporting this trend is the gradual stabilization of the naira, which has helped reduce import costs and restored some level of predictability for businesses that rely on foreign inputs.

Nigeria’s inflation challenges over the past two years were worsened by high exchange rate volatility, which pushed up the cost of imported food, fuel, and raw materials. This created a ripple effect across the economy, deepening household hardship and weakening purchasing power. However, with recent Central Bank of Nigeria (CBN) interventions that boosted foreign exchange supply, alongside policy efforts to unify exchange rates, the naira has shown relative steadiness. This, the report stressed, has had a direct impact on taming inflationary pressures.

The document further noted that businesses are beginning to adjust their pricing strategies in response to more predictable foreign exchange conditions. Importers, who were previously forced to set prices far above cost due to currency swings, now have increased confidence in planning and stocking goods at more stable rates. In turn, consumers are benefiting from reduced price hikes, a key factor in slowing inflation growth.

In addition to improved foreign exchange conditions, analysts pointed to tighter monetary policies such as interest rate hikes, improved liquidity management, and restrictions on speculative forex trading as contributors to inflation easing. The report emphasized that while these measures have short-term costs for businesses and borrowers, they are creating the foundation for longer-term economic stability.

Looking ahead, the report projected that if the CBN continues to strengthen its forex interventions and ensure transparency in the market, inflation could fall further in the fourth quarter of the year. It added that seasonal harvests and improved domestic food supply are also expected to complement forex stability in reducing food-driven inflation.

However, the report warned that Nigeria’s inflation outlook remains vulnerable to global uncertainties. It cited potential risks such as rising oil prices, external shocks in commodity markets, and lingering insecurity in food-producing regions, all of which could disrupt the positive momentum. Exchange rate gains, it stressed, must therefore be matched by stronger domestic production and trade policies to achieve lasting price stability.

Economic experts quoted in the report also urged the government to sustain reforms that enhance forex inflows, such as attracting diaspora remittances, boosting non-oil exports, and supporting investment in manufacturing and agriculture. They argued that long-term inflation management cannot rely solely on monetary policy and exchange rate stability but must be anchored on productivity and self-sufficiency.

The report concluded that Nigeria’s path to sustainable price stability will depend on a combination of foreign exchange reforms, monetary discipline, and structural economic policies. With inflation still among the highest in Africa, stakeholders believe that the government must leverage the opportunity created by forex stability to implement reforms that ensure food security, reduce import dependency, and drive inclusive growth.