On Thursday, the Nigerian naira continued its downward spiral, hitting an all-time low of 1,050 against the US dollar in the parallel market. This decline was driven by mounting concerns stemming from the postponement of the Monetary Policy Committee meeting.
The previous day, the naira had traded at 980 per dollar, but it extended its fall as the demand for dollars exceeded the available supply.
CBN postpones naira rates
Adding to the uncertainty, the Central Bank of Nigeria (CBN) announced the postponement of the naira rate-setting meeting originally scheduled for September 25-26. Additionally, the confirmation of Olayemi Cardoso, the ex-Citigroup executive, as the new governor of the CBN, is still pending.
This situation has been exacerbated by the resignation of the acting governor and four deputy governors, effectively creating a void in policymaking leadership at the highest level.
The CBN’s Monetary Policy Committee (MPC), under the leadership of the CBN governor, convenes every two months to make a choice regarding the Monetary Policy Rate (MPR), which is commonly referred to as the benchmark interest rate.
What MPC committee entail?
This committee holds the highest authority for policy decisions within the CBN. Its responsibilities include assessing economic and financial conditions in the nation, establishing the suitable policy direction for the near to medium future, and periodically evaluating and adjusting the CBN’s monetary policy framework when deemed appropriate.
Additionally, it effectively conveys monetary and financial policy decisions to the general public, ensuring the credibility of the mechanism by which monetary policy is transmitted.
The MPC typically convenes every two months, unless there is an urgent situation that requires a different schedule.
In May 2022, the CBN adopted a vigilant monetary policy approach to combat inflation. In its most recent meeting held in July, the CBN increased its key interest rate for the eighth consecutive time, raising it from 11.50 percent to 18.75 percent, as per data provided by the CBN
CBN’s new date yet to be released
The CBN has postponed a scheduled meeting, with a new date to be announced later. This decision is likely related to the pending confirmation of the new CBN governor and the need for consensus building.
Experts suggest that aligning research and the Monetary Policy Committee (MPC) around a common view is essential for any potential policy shift. Some express surprise at the postponement, noting that it’s unusual for a country not facing war or crisis, especially the largest economy in Africa, to delay an MPC meeting.
The naira’s ongoing depreciation can be attributed to heightened demand for the US dollar, primarily from individuals traveling abroad for various purposes like business, education, medical treatment, and tourism.
Stears Africa FX Monitor, an intelligence company, anticipates that naira volatility will persist. They emphasize that fiscal policies, external trade dynamics, and global market factors, such as inflation rates, interest rates, policy developments, and geopolitical events, significantly impact the naira’s performance.
Fadekemi Abiru, the Head of Insights at Stears, expressed concerns about this volatility, highlighting the importance of well-informed decision-making for businesses and investors in Nigeria.m
Naira continue to decline in the market
Meanwhile, in street trading, the naira’s value continued to decline, approaching the 1,000 naira to 1 US dollar threshold, as the central bank refrained from injecting dollars into a market fraught with anxiety.
Traders in Abuja and Lagos are reporting rising dollar rates, with quotes around N998 and 990, respectively. Dollar scarcity is becoming acute, making it difficult to find even $1,000 for purchase.
The parallel-market exchange rate for the naira is now approximately 29% weaker than the official rate, which closed at 770.71 per dollar on the FMDQ OTC trading platform. Initially, these rates converged after currency reforms were announced in June, but they have since diverged due to a shortage of dollars from the central bank.
Market players suggest that the central bank has been less active in supplying dollars this month, contributing to the naira’s rapid decline from around 900 per dollar at the beginning of September.
Furthermore, both businesses seeking foreign currency for imports, and ordinary citizens are buying dollars due to fears of a further naira decline. Many are awaiting new policies amid ongoing changes at the Central Bank of Nigeria (CBN), including the removal of the previous governor and deputies
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