In a surprising turn of events, the Nigerian Naira has experienced a marginal appreciation of 0.39 percent at the official foreign exchange (FX) market, marking its first gain after the recent benchmark interest rate hike by the Central Bank of Nigeria (CBN).
Despite a notable decrease in dollar liquidity by 22.71 percent to $119.14 million on Wednesday from $154.16 million recorded the previous day, the naira managed to strengthen slightly.
The CBN’s decision to raise its Monetary Policy Rate (MPR) by 400 basis points to 22.75 percent on Tuesday from 18.75 percent in July 2023 seemed to have initially rattled the market. However, contrary to expectations, the naira is strengthened by 0.39 percent, with the dollar quoted at N1,609.51 compared to N1,615.94 previously.
Data from the FMDQ Securities Exchange revealed that intraday high also saw an improvement to N1,660 per dollar on Wednesday, while the intraday low hit a new low at N1,401 per dollar, weaker than previous figures.
In the parallel market, the naira experienced a significant appreciation, climbing by 6.89 percent as the dollar declined by 6.45 percent to N1,450 on Wednesday compared to N1,550 exchanged the day before.
The decisions made during the Monetary Policy Committee (MPC) meeting, including the MPR hike, adjustments in the asymmetric corridor, and changes in reserve ratios, have raised concerns among industry experts.
Muda Yusuf, CEO of the Promotion of Private Enterprise, expressed apprehension about the potential impact of these decisions on the real sector of the economy. He highlighted the risk posed to the financial intermediation role of banks due to the substantial increases in MPR and Cash Reserve Ratio (CRR).
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Yusuf emphasized that these measures could further constrain bank lending and limit their ability to support economic growth and investment, particularly in the real sector. He pointed out that the credit situation in the economy is already tight, with lending rates ranging between 25 to 30 percent.
The developments in the currency market coupled with the concerns raised by industry experts highlight the delicate balance the Nigerian economy currently faces amidst macroeconomic challenges and policy adjustments by the central bank.
