On Tuesday, September 24, 2024, the Nigerian naira further depreciated against the US dollar, closing at N1,658.48 in the official Investor and Exporter (I&E) window.
This marked a significant 6.13% decline from the N1,562.66 recorded just a day earlier, as the naira breached the N1,600 mark.
The naira’s decline followed the Central Bank of Nigeria’s (CBN) decision to raise interest rates by 50 basis points, a measure intended to curb inflation. However, news of the hike failed to prevent the currency from falling below the N1,600 mark.
Despite the depreciation, trading activity in the market surged notably. Market turnover in the I&E window climbed by 66%, from $100.21 million on Monday, September 23, to $166.36 million on Tuesday.
Key Data Points
Closing Exchange Rate: The naira closed at N1,658.48 to the dollar on September 24, representing a 6.13% decline compared to N1,562.66 on September 23.
Intra-day Highs and Lows: On Monday, the naira experienced considerable fluctuations, trading between an intra-day high of N1,682.00/$1 and a low of N1,570.00/$1 before settling at N1,658.48 by the close of the trading session.
Market Turnover: Market turnover in the I&E window jumped sharply to $166.36 million on Tuesday, reflecting a 66% increase from the $100.21 million recorded the previous day.
However, on a broader scale, monthly turnover is on a downward trajectory, with total turnover for August standing at $3.3 billion, a drop from July’s $4.34 billion.
Parallel Market Rates: In the parallel market, the naira opened at N1,661.07 to the dollar, showing signs of volatility throughout the day. The currency fluctuated between a high of N1,664.07 and a low of N1,560.00, eventually closing at N1,590.01.
Market Trends
Since mid-July, the naira has hovered between N1,500 and N1,600, struggling to stabilize due to market volatility.
Year to date, the naira has depreciated by roughly 74%, driven by rising inflation and increasing demand for foreign exchange.
Despite these headwinds, Nigeria’s external reserves showed slight improvement, increasing from $36.305 billion on August 30 to $36.730 billion by September 10.
What to know
- The CBN surprised markets by raising interest rates by 50 basis points to 27.25%.
- The bank also increased the Cash Reserve Ratio (CRR) for commercial banks by 500 basis points to 50% and for merchant banks by 200 basis points to 16%.
- These measures aim to attract foreign portfolio investments (FPIs) in response to the US Federal Reserve’s recent rate cut.
What to expect
- The CBN’s interest rate hike could attract foreign investors, potentially easing pressure on the naira and stabilizing its value against the dollar.
- However, in the short term, market reaction may remain mixed as market sentiment adjusts to the announcement.
- If managed effectively, these measures could help reduce inflation, improve purchasing power, and support a stronger naira in the long run.
