Naira records first gain at official market after rate hike

Naira has recorded a marginal appreciation of 0.39 percent at the official foreign exchange (FX) market, the first gain after the Central Bank of Nigeria (CBN) jerked its benchmark interest rate on Tuesday.

This is despite a drop in dollar liquidity by 22.71 percent to $119.14 million on Wednesday from $154.16 million recorded on Tuesday at the official market.

The CBN raised its Monetary Policy Rate (MPR), also known as its benchmark interest rate by 400 basis points to 22.75 percent on Tuesday from 18.75 percent in July 2023.

After trading on Wednesday, naira strengthened by 0.39 percent as the dollar was quoted at N1,609.51 compared to N1,615.94 quoted on Tuesday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to the data from the FMDQ Securities Exchange.

Intraday high also appreciated to N1,660 per dollar on Wednesday stronger than N1,778 on Tuesday. Intraday low fell to N1,401 per dollar, the lowest ever, and weaker than N1,1,300 per dollar quoted on Tuesday.

The Naira appreciated by 6.89 percent as the dollar crashed by 6.45 percent to N1,450 on Wednesday compared to N1,550 exchanged on Tuesday on the black market.

The Monetary Policy Committee (MPC) meeting, which held on Monday and Tuesday, raised the MPR by 400 basis points to 22.75 from 18.75 per cent., adjusted the asymmetric corridor around the MPR to +100/-700 from +100/-300 basis points, raised the Cash Reserve Ratio from 32.5 per cent to 45.0 per cent, and retain the Liquidity Ratio at 30 per cent.

Muda Yusuf, CEO of the Promotion of Private Enterprise, expressed concern about the potential impact of the MPC meeting’s decisions on the real sector of the economy, which is already facing multiple macroeconomic challenges.

He noted that the hike in the MPR from 18.75 percent to 22.75 percent, along with the increase in the CRR from 32.5 percent to 45 percent, presents a significant risk to the financial intermediation role of banks in Nigeria. Yusuf emphasized that these increases could limit banks’ capacity to support economic growth and investment, particularly in the real sector, due to their substantial magnitude.

“Already, bank lending has been constrained by the high CRR which was until the latest review, 32.5 percent [many operators in the sector claim that effective CRR is as high as 50 percent for many banks], the discretionary debits by the apex bank. The credit situation in the economy is already very tight, with lending rate ranging between 25 -30 percent. The Nigerian banks are yet to live up to their financial intermediation role because of these constraining factors,” he said.