EXCHANGE RATE DYNAMICS AND THEIR IMPACT ON PRICE STABILITY IN NIGERIA

Exchange rate policy plays a vital role in macroeconomic management, given its influence on a nation’s balance of payments, income distribution, and overall economic growth. By facilitating international trade, sustaining competitiveness, and anchoring domestic prices, exchange rate movements significantly affect price stability and internal balance. The debate on the effectiveness of different exchange rate regimes has remained a central theme in economic research. Previous studies, such as Ghosh et al. (1996), highlight that pegged exchange rate systems are generally associated with lower inflation rates and reduced variability due to the discipline and confidence effects they impose on monetary and fiscal policy management. While pegged regimes may enhance investment, they also tend to be linked with slower productivity growth. In the Nigerian context, exchange rate fluctuations continue to exert considerable pressure on macroeconomic stability, particularly in relation to price stability and inflationary trends. This paper examines the influence of exchange rate movements on price stability in Nigeria, with a view to understanding the extent to which exchange rate policies can serve as effective tools for controlling inflation and promoting sustainable economic stability.