The naira has fallen again against the dollar, this
time to an all time low. The new exchange rate
will surprise you.
time to an all time low. The new exchange rate
will surprise you.
On Wednesday, a day after the Central Bank of
Nigeria’s Monetary Policy Committee hiked interest
rates to lure foreign investors back into local
assets, the naira fell against the dollar at the
interbank foreign exchange market to an all-time
low of 334.50.
Reuters reports that the naira had closed at 310
against the interbank market on Tuesday. About
$10m was traded at the new record low.
Foreign exchange traders said investors were
pushing the currency lower to test the limit of how
far it could fall, given a spread of almost 12 per
cent between the official and black market naira
rates.
“If we have more people trying to buy the naira then
it should strengthen. I think we will keep seeing the
trickles… I don’t think we will see large inflows until
the fundamentals of the economy improves,” one
trader told Reuters.
Economic analysts said the fall in the value of the
naira against the dollar at the interbank market had
nothing to do with the increase in the Monetary
Policy Rate.
A currency analyst at Ecobank Nigeria, Mr. Kunle
Ezun, said the exchange rate was reacting to the
interplay of demand and supply at the interbank
market.
He said, “This is what the interbank forex market
really wants, that is, a situation where only the
forces of demand and supply will determine price.
So far, the CBN has not intervened this week. The
rate at the interbank market today has nothing to do
with the increase in the MPR."
Ezun said a depreciating naira might attract some
foreign portfolio investors into the economy but
would cause higher inflation in coming months.
“There is no shortcut. Rising inflation will affect
consumer demand and the value of the naira,” he
added,
An expert and Partner, Transaction Advisory
Services, Ernst and Young Nigeria, Mr. Bisi Sanda,
said the CBN’s Monetary Policy Committee should
have reduced the interest rate in order to stimulate
economic growth, instead of increasing the MPR.
He said, “The inflation we are experiencing is not
caused by a shift in demand curve, but a shift in
the supply curve. Instead of hiking the interest rate,
we should have reduced it in order to stimulate
growth through increased spending.
"The voting pattern at the MPC shows that not all
the members are actually in support of the increase
in the interest rate.”
According to the Chief Executive Officer, Cowry
Assets Management Limited, Mr. Johnson
Chuwkwu, the CBN needs to act fast and restore
confidence back to the market.
This, he said, could be done by ensuring that the
exchange rate stability is achieved as soon as
possible.
Chukwu said, “As it is, there is no amount of
depreciation or devaluation that happens that will
give foreign portfolio investors confidence. They
want to see stability. They want to be able to
predict the naira.
Once there is stability, confidence will return. The
CBN may do this by accessing a lifeline from the
International Monetary Policy Committee.”
