THE naira depreciated to its worst level in four months to N1,609.29 against the dollar on Friday, July 26, a few days after the Central Bank of Nigeria (CBN) raised the benchmark interest rate.
At its two-day monetary policy committee (MPC) meeting on Tuesday, July 23, the CBN tightened the monetary policy pool and hiked the benchmark interest rate to 26.75 per cent from 26.25 per cent in May.
This is the fourth consecutive time the apex bank has raised the monetary policy rate to rein in inflation which surged to 34.19 per cent in June.
The rate hike has failed to lessen inflationary pressure which inadvertently is affecting Nigeria’s currency market, with the naira becoming a weaker store of value by the day.
For instance, at the official Nigerian Autonomous Foreign Exchange Market (NAFEM) window, the naira closed at closing at N1,609.29 to the dollar on Friday, July 26 compared to the N1,500.32 it closed on Monday, July 22 when the apex bank commenced its MPC meeting.
On Tuesday, July 23 when it ended its meeting, the naira worsened to N1,548.76 to the dollar, to N1,586.71 on Wednesday, July 24, and to N1,603.80 on Thursday, July 25.
A check by The ICIR shows that the last time the dollar traded above N1,600 to the dollar was on March 15 when the naira depreciation against the dollar at N1,602.75.
The depreciation of the naira to a four-month low came after the CBN announced its intention to defend the naira over the next few weeks.
The apex bank had on Friday, July 19, said it had commenced a regular intervention in the country’s foreign exchange market to quell the large demand pressure from corporate entities and the expected seasonal uptick during the summer period.
“Recent movements in the forex market are largely driven by demand pressure from corporate entities and the expected seasonal uptick during the summer period.
“Over the next few weeks, the CBN will continue to support various segments of the official markets with liquidity,” the apex bank said.
According to the CBN, its intervention in different segments of the market is in line with its price stability mandate and commitment to ensuring a well-functioning and liquid market.
In the last three weeks, the apex bank had sold $229.17 million to authorised dealer banks between an exchange rate range of N1,480 above to a dollar.
It also sold $20,000 to each of the eligible Bureaux De Change operators to avert market distortion in the Nigerian foreign exchange market.
Experts believe that not meeting its crude oil production quota remains a major determining factor for the shortage of foreign exchange in the country.
The federal government needs to pay closer attention to Nigeria’s dwindling oil production to grow support for the foreign exchange market, a Partner and Head of Africa Tax at KPMG, Wale Ajayi, said.
“We are not meeting up with our Organisation of Oil Producing Countries (OPEC) quota and it’s not good for our foreign exchange market and budget funding. We have 1.7 million barrels per day in the budget and we are not doing up to 1.5 million barrels per day production,” he said.
The Dangote Refinery, projected to earn foreign exchange savings of between $25 billion and $30 billion yearly for the country, has struggled to start production of petroleum products due to regulatory bottlenecks.