Dear Subscriber,

The official exchange rate adjusted sharply (N435/$) on the last day of 2021, after trading relatively stable at N415/$. This is the second consecutive year in which the rate was arbitrarily moved on the last day of the year. This brings to fore the question on everyone’s minds, if indeed there is really a crawling peg, a floating exchange rate or just playing with mirrors? This is occurring at a time when oil prices are trading at $74pb. However, for the Nigerian external sector, there seems to be no direct correlation between the price of oil, forex supply and the exchange rate. Adjusting the official exchange rate albeit temporarily could send the wrong signal to investors and further stoke the flames of market uncertainty.

2021 was an eventful year of sluggish economic growth, policy ambiguity, governments playing ping pong over travel restrictions, and mixed global markets. The year started out with much optimism with Covid-19 vaccines just starting to roll out across the globe. News of vaccine efficacy revitalized global markets like commodities, which had taken a severe fall the prior year on lockdown-driven demand interruptions. The sharp uptick in demand activity across the world did however bring with it some negative effects, namely, inflation caused by supply chain bottlenecks. Towards the end of the year, Covid-19 reared its ugly face once again, in the form of the Omicron variant, leading to a whole new host of lockdowns and restrictions that could derail the pandemic recovery efforts of many countries.

As if that was not enough, excessive stimulus and supply chain bottlenecks have stocked global inflation. Developed nations are becoming more hawkish in their monetary policy stance, earlier than anticipated. Nigeria seems to be an outlier, as its official headline inflation has continued to decline for 8 consecutive months (15.40%). This is in spite of higher energy costs and exchange rate pass through effect. Amidst rising oil prices and waning Omicron variant fears, it remains to be seen what bounties 2022 might hold for the country and the global economy as a whole.

In this edition of the FDC Bi-Monthly publication, the FDC Think-Tank analyzes these issues and their implications on businesses and the economy at large.

Enjoy your read!