The central bank’s intervention this week failed to stop the Nigerian naira from falling to a two-month low ahead of a rate decision on Monday.
As of Thursday, the naira fell 5.1% versus the dollar to 1,533.99, the lowest since March 20. These figures come from prices published by FMDQ, the trading platform that determines the official rate. This undid a 4% increase that had been made the day before after the central bank sold dollars in the market to increase liquidity.
The amount of the Central Bank of Nigeria’s intervention was between $80 million and $100 million, according to Standard Chartered Bank’s head of Africa strategy Samir Gadio.
As a result, the foreign currency market’s liquidity on Wednesday more than doubled to $289 million. On Monday, the central bank also sold dollars.
In an effort to draw in investors and regain the trust of the public, President Bola Tinubu’s administration depreciated the naira twice in the previous year. Tinubu will conclude his first year in office on May 29. However, there has been instability in the local unit. After rising 40% between the middle of March and the beginning of April, it fell 24% during the previous week.
“Market participants may still be concerned about the $1.3 billion in naira futures contracts maturing in late May,” Gadio stated.
“The most important question at this point is whether the majority of offshore investors holding the May futures contract will reinvest the naira proceeds in local debt or buy dollars,” he added.
In an effort to maintain international investors’ interest in Nigerian paper, the central bank’s monetary policy committee is anticipated to boost rates even more when it meets the following week.
In two meetings in February and March, the regulator raised rates by a total of 600 basis points in an effort to reduce inflation, which is at a 28-year high.
