Market

Forex supply jumps 66% as CBN hikes interest rates

Naira appreciated slightly on the official market, despite a substantial 66% increase in foreign exchange (FX) supply and a new rate hike by the Central Bank of Nigeria (CBN). 

This trend reflects a complex interplay of economic forces as the nation’s currency continues to navigate a volatile financial landscape. 

The Monetary Policy Committee (MPC) of the CBN attributed the recent volatility in the foreign exchange market leading to the recent depreciation of the Naira against the dollar to “seasonal demand” for the greenback. 

The naira appreciates by 0.23% on Tuesday 

  • The most recent data from the FMDQ for May 21, 2024, shows the exchange rate between the naira and dollar in the official NAFEM Window is at N1465.68/$1, appreciating by a mere 0.23%. FX supply further increased to $268.17 million, a 66.14% rise. 
  • This is the third consecutive appreciation for the first time in May. On May 17, 2024, the Naira closed at N1497.33/$1 to the dollar, registering a 2.45% appreciation. However, the FX supply on this day stood at $83.5 million, marking a significant 69.40% decrease compared to previous levels. This reduction in FX supply did not deter the naira’s strength. 
  • By May 20, 2024, the Naira’s value slightly improved to N1468.99/$1, appreciating by 1.93%. Notably, the FX supply surged to $161.41 million, an impressive 93.31% increase. This influx of FX was expected to reinforce the naira, yet the currency’s appreciation slowed, indicating underlying market pressures. 

Despite the ample supply of FX, the Naira’s appreciation rate decelerated, underscoring the complexity of the factors at play. 

The trading dynamics on Tuesday further affirmed the erratic nature of the market. 

During intra-day trading, the exchange rate peaked at an intra-day high of N1,549/$1, highlighting a temporary surge in dollar sales.   

Conversely, the intra-day low was N1,401/$1, reflecting periods of heightened buying pressure on the naira.    

Central Bank’s rate hike 

The CBN increased the monetary policy rate (MPR) by 150 basis points, to a new unprecedented 26.25% at the end of its 295th meeting of the Monetary Policy Committee (MPC).  

This is a lower hike compared to the 200 basis points at 24.75% after the previous meeting. The decision announced by the CBN governor, Yemi Cardoso, propels the MPR to its highest point ever, reaffirming the CBN’s aggressive stance on monetary tightening in response to inflationary pressures.  

The Central Bank’s new monetary policy adjustment, aimed at stabilizing the Naira, included a notable rate hike. The policy rate was raised to curb inflation and attract foreign investment, theoretically supporting the Naira. 

However, the anticipated immediate impact on the currency’s value has been tempered by the broader economic environment. 

More Insights 

  • The current scenario suggests that while increased FX supply and policy adjustments are crucial, other economic factors, including investor sentiment, market speculation, and external economic conditions, significantly influence the Naira’s trajectory. The deceleration in the naira’s appreciation, despite higher FX availability, highlights these complexities. 
  • The increased FX supply and rate hike, while significant, must be complemented by deeper economic reforms to ensure long-term currency stability. 

 


NewsTimes.Africa.

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