Nigeria’s currency, the naira, faced a sharp decline against the dollar, hitting a record low despite recent efforts to improve liquidity in the foreign exchange market.
Central Bank Governor Olayemi Cardoso disclosed that despite over $1 billion flowing into the economy to purchase Nigerian Treasury bills, the naira struggled to maintain stability. The auction of one trillion naira ($678.60 million) worth of notes, oversubscribed as it was, failed to stem the currency’s downward spiral.
Cardoso emphasized the necessity of controlling forex demand to sustain the central bank’s initiatives aimed at stabilizing the exchange rate. In response to rising inflation and dwindling investor interest in treasury bills, the bank raised open market rates to 19% and eliminated caps on interbank forex spreads.
The naira’s official exchange rate plummeted last week to 1,531 per dollar from 900 following adjustments in the market regulator’s rate calculation methodology. Friday saw further depreciation, with the naira hitting an intra-day low of 1,540, surpassing the unofficial parallel market rate.
With Cardoso set to chair the central bank’s first rate-setting meeting on February 26, analysts anticipate a tightening of rates to 20.75%, reflecting the bank’s determination to restore confidence in the currency.
Despite challenges, Cardoso expressed optimism, citing early signs of foreign investor interest in providing much-needed foreign exchange. As Nigeria grapples with economic uncertainty, stakeholders await the central bank’s policy decisions, crucial for navigating the country’s currency and economic landscape.
By: Montel Kamau
Serrari Financial Analyst
12th February, 2024
