The naira crashed to another record low on the black market, trading at an average of N722/$1 on Tuesday morning, from N713/$1 recorded in the previous trading session. This is according to information from black market FX traders, who spoke to Nairametrics.
The exchange at the unofficial market has been on a freefall so far in the year, with FX scarcity being the major cause of the currency depreciation. The economy continues to suffer from a decline in forex inflow, which has seen the exchange rate hit a record low from global headwinds.
In contrast to the beginning of the year, the naira has depreciated by over 21% from N565/$1 recorded as of December 31st, 2022. In the same vein, the margin between the official market and the parallel market has also grown wider, creating more arbitrage.
The exchange rate closed at N436/$1 at the Investors and Exporters window on Monday, bringing the exchange rate differentials to a record N286/$1. The amount of FX trading at the official window also dipped by 26.4% on Monday to $78.1 million from $106.1 million recorded in the previous trading session.
All eyes are now set on the Monetary Policy Committee (MPC) briefing later today, to see the direction of the apex bank concerning interest rate movement and policy directions having increased the benchmark interest rate by 250 basis points in the last four months.
Similarly, Nigeria’s inflation rate touched a new 14-year high in August 2022 at 20.52% from 19.64% recorded in the previous month, largely due to the depreciation of the naira against the US dollar. It is worth noting that the downturn of the local currency is not unique to Nigeria as it is also affecting other economies of the world.
Earlier in the week, Nairametrics reported that the Pound fell to a record low against the US dollar, following the UK’s biggest tax cuts in 50 years, while rising interest rates continue to steer worries of an economic downturn. In the same vein, Ghana’s Cedi continues to fall against the US dollar as the inflation rate pushes stronger.
A major concern of the monetary policy committee will be the rate at which the local currency is falling on the black market, despite efforts to manage the volatility at the official window.
What experts are saying
Experts had predicted that the CBN may be compelled to hold the interest rate due to the nature of Nigeria’s inflationary pressure and its multiple hikes in May and July 2022. Dr. Muda Yusuf, the CEO, of the Centre for the Promotion of Private Enterprise (CPPE), maintained that the rates would be held constant. He said “we cannot have a tightening policy in an economy grappling with fragile growth and high unemployment. But the credit conditions are already very tight. Cash Reserve Requirement CRR is at 27.5 percent, one of the highest globally.
Effective CRR for some banks is about 50% or even more. The liquidity Ratio is 30%, MPR is 14%. These restraining thresholds are already on the high side. Financial intermediation is already being considerably impeded. “
Also, Ezekiel Gomos, an economist at Jos Business School maintained that the CBN could hold the monetary parameters constant, considering that the nature of Nigeria’s inflation cannot be easily tamed by monetary policies.
Ordinarily, inflation can be tamed by interest rate, however, this is not necessarily the case with Nigeria, due to the huge size of the informal sector. A significant portion of the people are not captured in the financial system,” he said.
