Naira Hits All-Time Low Of N334.50 Per Dollar | Independent Newspapers Limited
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Naira Hits All-Time Low Of N334.50 Per Dollar

Naira, Foreign Reserves, exchange rate, foreign reserves; fx market
Posted: Jul 28, 2016 at 6:05 am   /   by   /   comments (0)

The naira weakened to an all-time low of N334.50 against the dollar on the interbank market on Wednesday, a day after the central bank hiked interest rates to try to lure foreign investors back into local assets, traders said.

The naira fell 5.8 percent on Wednesday from its opening rate, and $10 million was traded at the new record low.

According to Reuters, traders said investors were pushing the currency lower to test the limit of how far it can fall, given a spread of almost 12 percent between the official and black market naira rates.

“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,” one trader said.

Africa’s largest economy has been battered by the plunge in oil prices. This has been compounded by attacks on oil infrastructure by a group calling itself the Niger Delta Avengers, which has contributed to oil production declining by a third.

Since the central bank caved in to market pressure and abolished the 16-month old currency peg in mid-June, the naira has plunged almost 60 percent.

Inflation is already running at 16.5 percent, and is set to soar even higher in the wake of the currency devaluation, pushing central bank governor Godwin Emefiele to jack up rates 200 basis points to a record high of 14 percent on Tuesday.

With the country in the midst of its worst economic crisis in a decade, having contracted 0.4 percent in the first quarter, Emefiele was faced with a tough choice between trying to spur growth by keeping rates low, or targeting inflation and trying to lure back foreign investors by pushing rates up, according to FT.

Oyin Anubi at Bank of America Merrill Lynch said the move to hike rates makes “it clear that curbing inflation and attracting foreign investors is taking priority over growth”.

“This decision is positive for sentiment towards Nigerian financial markets as a tighter policy can support a weaker naira rate, which enables more dollar supply.

“At this point, higher interest rates are unlikely to have a large incremental negative impact on growth, but increased dollar supply can help economic activity rebound. If the CBN continues on the path of allowing the currency to weaken, but attempting to control the pace of depreciation through tighter monetary conditions, this should be positive for sentiment.

“Moreover, this increasing FX flexibility should help Nigeria to secure more external financing, both from the market (via the expected Eurobond issue) and from the World Bank loan alluded to earlier in the year.”