Central bank intervention this week failed to stop slide in Nigeria’s naira to a two-month low ahead of a rate decision Monday.
The naira weakened 5.1% on Thursday to 1,533.99, the weakest level against the dollar since March 20, according to prices provided by FMDQ, the trading platform that sets the official rate. That reversed a 4% gain the previous day as after the central bank sold dollars in the market to boost liquidity.
The Central Bank of Nigeria intervened to the tune of $80 million to $100 million, according to Samir Gadio, head of Africa strategy at Standard Chartered Bank. This helped liquidity in the foreign exchange market more than double to $289 million on Wednesday. The central also sold dollars on Monday.
The government of President Bola Tinubu, who completes a year in office on May 29, devalued the naira twice in the past year in a bid to lure investors and restore the currency’s credibility. Still, the local unit has been has been volatile. It appreciated 40% from mid-March to early April before weakening 24% over the past month.
“Market participants may still be concerned” about the $1.3 billion of naira futures contracts maturing in late May, Gadio said. “The key question now is whether most offshore investors holding the May futures contract will buy dollars or reinvest naira proceeds in local debt,” he said.
The central bank’s monetary policy committee meets next week and is expected to raise rates further in a bid to keep foreign investors interested in Nigerian paper.
The regulator has lifted rates by a cumulative 600 basis points in two meetings in February and March as it sought to curb inflation, which is at a 28-year high.
