Rewritten Blog Post:
The Nigerian Naira performed really well against the stable US dollar recently, thanks to more money coming in from the Central Bank of Nigeria (CBN). This is the best improvement seen since March.
The Central Bank is planning to increase interest rates one final time. This move is to help the Naira stay strong and control inflation, which is the highest it’s been in nearly 30 years. After this, the Central Bank may stop making such big changes for now.
According to data from FMDQ, the Naira gained almost N100 per dollar. On Monday, it was traded at N1,500.32 compared to N1,596.92 last Friday. That’s a huge 640 basis points jump!
In the black market, where many people trade foreign currency, the Naira settled at N1,570 per dollar. This is a small increase compared to N1,580 last Friday, just less than 100 basis points up.
To help the country’s struggling foreign currency market, the CBN sold approximately $106.5 million to authorized foreign exchange dealers over two days late last week.
The CBN says the main reasons for the recent changes in the foreign exchange market are more demand from businesses and the usual increase in activity during the summer period.
Upcoming MPC Meeting
Nigeria’s upcoming Monetary Policy Committee (MPC) meeting will probably lead to a small rate hike due to high inflation. The high prices in the black market indicate that the Naira will face tough resistance near the 1,600/$ level.
During the last MPC meeting on May 21, 2024, the committee increased the monetary policy rate (MPR) from 24.75% to 26.25%, marking a 150-basis point rise. Earlier MPC meetings in 2024 had already increased rates three times. This helped attract more foreign investments but didn’t quite manage to lower inflation.
The market expects that the high inflation rate will lead to another rate hike this year.
Nigeria’s Persistent High Inflation
The MPC has decided to use higher interest rates to battle inflation. But Nigeria’s inflation hasn’t gone down. Since the last rate increase in May 2024, inflation has risen by 0.24%, reaching 34.19% in June 2024.
Despite actions taken by the Central Bank of Nigeria (CBN) to reduce the high consumer price index, inflation remains high for 28 consecutive years. With inflation rising from 33.95% in May 2024 to 34.19% in June 2024, the CBN’s MPC is expected to raise interest rates again on Tuesday.
Goldman Sachs Group Inc. economist Andrew Matheny says, “Inflation has not slowed since the last meeting, and the Naira’s value has dropped again, both of which are inflationary. This means the CBN will likely maintain a strong position on their policies.”
Many families are now poorer due to the Naira’s drop in value, 18 months of rising prices, and reduced purchasing power. The World Bank reports that Nigeria, rich in oil, has the second-highest poverty rate after India, with an estimated 87 million people living in poverty.
Goldman Sachs is encouraging the Central Bank to take stronger actions to control inflation and change foreign investors’ perceptions. Matheny notes, “An additional 50 or 100 basis points won’t make much difference to investors.”
Since February, under Cardoso’s leadership, the CBN has increased lending rates by a total of 750 basis points, reaching 26.25%.