Naira falls to N330.12/$ on interest rate hike

The naira yesterday depreciated to a record low of N330.12 against the US dollar after the Central Bank of Nigeria (CBN) raised interest rates.

The Monetary Policy Committee (MPC) after its meeting on Tuesday, raised the Monetary Policy Rate (MPR) by 200bp to 14 percent from 12 percent, highlighting inflationary pressures.

The nation’s currency yesterday lost N20.05k, representing 6.47 percent, compared with N310.07 it closed the previous day, data from FMDQ indicated.

At the autonomous and interbank market, naira also weakened against the dollar following strong demand by end users. It depreciated by N10 or 2.78 percent to close at N370/$ as against N360/$ the previous day.

The naira fell by N1 to close at N378/$ yesterday from N377/$ on Tuesday, which is about 0.27 percent decline at the parallel market, BusinessDay findings reveal.

Currency dealers said yesterday that investors were pushing the currency lower to test the limit of how far it could fall, given a spread of almost 12 percent between the official and black market naira rates.

According to analysts at Ecobank Nigeria Limited, the overall strategy of the MPC appears to be one of maintaining a tight monetary environment in order to slow inflation while at the same time providing support to the Nigerian naira. However, the success will largely depend on how much of capital inflows seeking to buy high yielding government securities are attracted to stimulate domestic growth.

“We expect the hike in the policy rate to have a negative impact on current portfolio holdings, in terms of pricing, while increasing bond yields (which would provide a new re-entry point for naira denominated assets, in turn, this will help to provide FX liquidity to stabilise the naira,” the analysts said.

Furthermore, they said subscriptions in primary market auctions were generally well covered, reflecting strong domestic demand, which underscores investors’ confidence in the CBN’s monetary policy stance. However, notwithstanding any unexpected liquidity management operations by the CBN, the recent decision to hike the MPR by 200bp to 14 percent is unlikely to see secondary market yields shift considerably from their current levels over the short term.

HOPE MOSES-ASHIKE