Naira Hits Record Low Against Dollar Despite Interest Rate Hike
Thank you for reading this post, don't forget to subscribe!Nigeria’s naira has plunged to a new low against the dollar, reaching 1,677 naira per dollar at the official close on Wednesday, according to FMDQ data compiled by Bloomberg.
This marks an 8.2% drop since the end of last week, reflecting ongoing local scarcity of US currency and diminishing foreign capital inflows as investors await tangible evidence of the government’s commitment to ambitious fiscal reforms aimed at enhancing revenue collection and boosting oil production.
The decline occurred despite the Central Bank of Nigeria’s unexpected 50 basis point interest rate hike to 27.25% on Tuesday, implemented to combat inflation near a three-decade high.
“At some point, we saw significant inflows from foreign portfolio investors, but that has slowed considerably,” noted Muyiwa Oni from Stanbic IBTC Bank Plc. He emphasized that increased dollar generation from both oil and non-oil sectors would enhance investor confidence and potentially stabilize the naira.
Nigeria has struggled to meet its OPEC oil production targets due to years of underinvestment in the industry. As Africa’s largest oil producer, the country relies heavily on crude exports for foreign currency but simultaneously spends substantial dollars importing refined petroleum and subsidizing fuel prices, which cost approximately $10 billion in 2022.
Recent developments may offer some hope, as a mega refinery owned by billionaire Aliko Dangote near Lagos has begun producing gasoline in recent weeks. However, dollar scarcity continues to plague the local currency market, leading the central bank to intervene frequently by selling dollars to nearly 6,000 registered Bureau de Change operators.
“Volatility has been a persistent issue for the naira, and it seems set to continue unless there are consistent inflows to support liquidity,” stated Ayodeji Dawodu from BancTrust Investment Bank Ltd.
He also indicated that the recent rate hike signals the central bank’s expectation of ongoing inflationary pressures, which could further weaken the local currency.
