NIGERIA’S naira is sinking against the dollar in the parallel market, closing at N562/$ on Wednesday against N557/$ at the market opening.

On the Importers/Exporters window, the country’s currency closed at N410.54.

The British pound was stable against the naira, closing at N760/£ – the same rate at the start of the market day.

However, naira weakened against the euro, closing at N648/$ against N645/$ on Wednesday morning.

Naira has weakened against the greenback by over 40 per cent in the parallel market in the last one year as COVID-19, oil price vagaries, and low dollar supply continue to hurt the economy.

For an import-dependent economy like Nigeria, the relationship between exchange rate and inflation is direct.

The reason is that as the local currency weakens, prices of imported goods become more expensive, experts say.

One of the Bureau De Change operators recently banned by the Central Bank of Nigeria (CBN) Aminu Salau said that hoarding of dollars had become commonplace in the parallel market.

“There is an increased rate of hoarding in the market. Many people are holding their dollars with the hope that prices will rise further in the future,” he said.

Chairman of Manufacturers Association of Nigeria Export Group Ede Dafinone said in the face of dwindling dollar inflows from oil, Nigeria should increase non-oil export to raise foreign exchange inflows.

However, amid the weakening local currency, inflation fell in August 2021, dropping from 17.38 per cent in July to 17.01 in August, representing a marginal 0.37 per cent decline.

The composite food index was 20.30 percent in August 2021 as against 21.03 percent in July.

Food inflation was highest in Ekiti (2.70 per cent), Abuja (2.62 per cent) and Akwa Ibom (2.50 per cent) states.

This drop in the inflation rate also did little to affect the rise in prices of non-food items that the NBS categorised as “shoes and other foot wears” and “clothing materials, other articles of clothing and clothing accessories.”

Experts believe that insecurity, low non-oil exports, poor policy coordination, and foreign exchange risks  have combined to ensure that inflation in Africa’s most populous nation remain in double-digit numbers.