Naira Hits New Low Of N334/$ Despite Rate Hike

One day after the Central Bank of Nigeria (CBN) hiked benchmark interest rates to attract foreign portfolio investments, the value of the naira dipped to a new low of N334 to the dollar as demand for foreign currency soared.

The Monetary Policy Committee of the CBN had decided against holding it stance and increased monetary policy rate by 200 basis points from 12 per cent to 14 per cent. The naira weakened to N334.50 at the interbank market yesterday from N310.50 which it closed on Tuesday.

Although the value of the naira had dropped by 7.7 per cent compared to Tuesday’s value at the interbank market, it depreciated slightly at the parallel market where it fell to N378 yesterday from N377 to the dollar which it sold on Tuesday.

Traders said investors were pushing the currency lower to test the limit of how far it can fall, given a spread of almost 12 per cent between the official and black market naira rates. Analysts believe the MPC decision to hike rates although the country is heading into a recession so as to attract foreign portfolio investments that will drive liquidity in the market.

The anticipation of the CBN according to analysts is that higher rates will drive an inflow of foreign currency from investors such will in turn create a stronger naira and drive down the imported inflation in the long run.

Traders however say inflow of FPI may not come as soon as expected as there are other factors that the country needs to fix to stir the interest of the investors. One trader told Leadership that investors are still not sure that exiting the economy will be as easy considering the reserves and the low forex income of the country.

“If we have more people trying to buy the naira then it should strengthen. I think we will keep seeing the trickles. I don’t think we will see large inflows until the fundamentals of the economy improves,” another trader said.

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