Naira in record freefall as CBN postpones rate decision

The naira continued its free-fall on Thursday, depreciating to a record low of 1,050 per dollar at the parallel market amid concerns over the postponement of the Monetary Policy Committee meeting.

The naira, which traded at 980/$ on Wednesday, fell further as dollar demand outweighed supply.

The Central Bank of Nigeria (CBN), on Thursday, postponed a rate-setting meeting scheduled for Sept 25-26. Its new governor, ex-Citigroup executive Olayemi Cardoso, is yet to be confirmed in his role, while the acting governor and four deputy governors have resigned, effectively leaving a policy-making vacuum at the top.

The Monetary Policy Committee (MPC) chaired by the governor of the CBN, meets bimonthly to take a decision on the Monetary Policy Rate (MPR), also known as the benchmark interest rate.

The MPC is the highest policymaking committee of the CBN with the mandate to review economic and financial conditions in the economy, determine appropriate stance of policy in the short to medium term and review regularly the CBN monetary policy framework and adopt changes when necessary.

It also communicates monetary/financial policy decisions effectively to the public and ensures the credibility of the model of transmission mechanism of monetary policy.

The MPC meets bi-monthly, except otherwise, in the event of an emergency.

Read also: CBN postpones MPC meeting for the second time ever

The CBN has maintained a hawkish monetary policy stance since May 2022 to rein in inflation.

In its last meeting in July, the CBN raised its benchmark interest rate for the eight consecutive time to 18.75 percent from 11.50 percent in May 2022, data from the CBN indicated.

In a notice, signed by Isa AbdulMumin, director of corporate communications, and posted on its website, the CBN said a new date would be communicated in due course.

“There is no implication. A meeting was deferred probably till new management can come in,” Yemi Kale, partner and chief economist, KPMG Nigeria, said on Thursday.

Charlie Robertson, head of macro strategy at FIM Partners UK Ltd, said: “I suspect the new CBN governor wants more time to build a consensus ahead of an interest rate decision. Any policy shift will require good communication, so it makes sense for the CBN to align research, and the MPC, around a common view.”

Kalu Aja, a financial planning expert, said he could not remember “a nation not at war or crisis not holding an MPC, much less the largest economy in Africa”.

“The ‘team’ should be supporting the ‘CEO’s’ hustle,” he said on X (formerly Twitter).

The continued naira depreciation followed strong demand for dollars by individuals traveling abroad for business, school, medical or tourism.

Stears Africa FX Monitor, a data and intelligence company, has predicted a continued naira volatility.

The company highlighted fiscal policies, external trade, and global market trends, including inflation rates, interest rates, policy events, and geopolitical factors as key factors affecting the naira’s performance.

Fadekemi Abiru, head of Insights at Stears, expressed concerns about the naira volatility. “The continued unpredictability of the naira underscores the importance of timely and informed decision-making for businesses and investors in Nigeria,” she said.

The naira extended its slide and hurtled towards the 1,000/$ mark in street trading, as the central bank held back from supplying dollars to a panic-stricken market.

Traders in Abuja quoted the dollar at N998 on Thursday, according Yahaya Adamu, a currency dealer in Wuse, a suburb of the nation’s capital. In the commercial hub Lagos, the greenback changed hands around 990, according to Umar Salisu, a foreign-exchange operator who compiles the data in Lagos.

“Dollar is so scarce now that as I speak to you, you cannot find $1,000 to buy,” Adamu said.

The currency’s parallel-market rate is now about 29 percent weaker than the official exchange rate, where the naira closed Wednesday at 770.71 per dollar on the FMDQ OTC trading platform. The two rates had briefly converged soon after the country’s newly elected president Bola Tinubu announced sweeping currency reforms in June, but they have diverged steadily since then as dollar supply from the central bank fell short.

The central bank has mostly been on the sidelines this month, according to market players, with one person saying it has barely supplied dollars to the official window. That has helped accelerate the naira’s slide, pushing it down from around 900 per dollar at the start of September.

Read also: What to expect after Nigeria floats naira

Meanwhile, companies seeking hard currency to pay for imports have been joined in dollar buying by ordinary citizens who are fearful of further depreciation in the naira.

“There is a total reform going on now at CBN, there won’t be any continuity of policies as the previous governor and his deputies were removed and not retired, if retired there would have been continuity. So we are looking forward to see a new policy,” Onoja Usman, managing director/CEO, Lovonus Microfinance Bank Limited, said.