Naira Under Pressure While MPC sets Rate

On the black market, the naira plunged to another record low, averaging N722/$1 on Tuesday morning compared to N713/$1 in the previous trading session. According to the estimation and pricing of some black market FX traders.

The year started with the exchange rate in the unofficial market in freefall, with FX scarcity being the main factor in the decline of the currency. Given that the fall in foreign exchange inflow has persisted and the exchange rate is hitting a record low due to external pressures, the economy continues to be under severe pressure.

Far from what it was earlier in the year, the naira, as of December 31st, 2022, has declined by nearly 21% from N565/$1. The current state of things also means there is now increased room for arbitrage due to the widening of the gap between the official market and the parallel market.

Monday’s closing rate at the Investors and Exporters window was N436/$1, bringing the record exchange rate gap to N286/$1. Additionally, the volume of FX trading at the official window decreased on Monday by 26.4% to $78.1 million, a significant drop from the $106.1 million recorded in the previous trading session.

Now that the benchmark interest rate has risen by 250 basis points over the past four months, the attention of all stakeholders turns to the Monetary Policy Committee’s (MPC) resolution which is expected to be made public soon. The briefing is expected to reveal the central bank’s stance on interest rate movement and policy directions.

Nigeria’s economy stands at a critical juncture, the inflation rate reached a new 14-year high in August 2022, rising to 20.52% from the previous month’s 19.64%, partly as a result of the naira’s decline versus the US dollar. However, it is important to note that the decline of the local currency is not exclusive to Nigeria and is having an impact on other economies around the globe.

A report released earlier in the week revealed that the Pound slid to an all-time low against the US dollar, following strategic reforms that involved the introduction of the UK’s biggest tax cuts in 50 years, all while rising lending costs continue to drive up worries of an economic downturn. Over in Ghana, the Cedi also continues to fall against the US dollar as the inflation rate pushes stronger.

The rate at which the local currency is depreciating on the black market, despite measures to control volatility in the official window, will be a major worry of the monetary policy committee. Experts have posited that the CBN may be forced to hold interest rates because of the nature of Nigeria’s inflationary pressure and its numerous increases in May and July 2022. 

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