Nigeria’s naira dropped to a record intra-day low against the dollar on Friday, LSEG data showed, following a devaluation last week, its second adjustment in less than a year, despite the central bank saying liquidity was improving. Central bank governor Olayemi Cardoso said on Friday that over $1 billion had come into the economy in the last few days to buy Nigerian Treasury bills after it auctioned one trillion naira ($678.60 million) worth of notes that were oversubscribed.
He told lawmakers on Friday that the measures taken by the bank to improve dollar supply have tamed currency volatility. But he added that forex demand had to be moderated for these measures to be sustainable. The central bank this week hiked open market rates to 19% from under 12% to draw investors to bills which had lost their shine to equities as inflation climbed to a nearly three-decade high and lagged behind the benchmark policy rate of 18.75%.
It also scrapped caps on interbank forex spreads. “These measures, aimed at ensuring a more market-oriented mechanism for exchange rate determination, will boost foreign exchange inflows, stabilize the exchange rate, and minimize its pass-through to domestic inflation,” he said. Africa’s largest economy has been experiencing a crippling dollar shortage that has pushed its currency to record lows in recent weeks, though Cardoso has said that dollar liquidity was improving.
The official naira exchange rate last week plunged to as low as 1,531 per dollar from 900, well below black market levels, after the market regulator changed its closing rate calculation methodology, in a de facto devaluation. The naira fell to as low as 1,540 intra-day on Friday, dropping lower than the 1,449.27 naira quoted on the unofficial parallel market. The central bank is due hold its first rate-setting meeting under Cardoso on Feb. 26, six months after the last one, with several analysts expecting the bank to tighten rates by at least 200 basis points to 20.75%.”Indeed, they (central bank measures) have already started yielding early results with significant interest from foreign portfolio investors that have already begun to supply the much-needed foreign exchange to the economy,” Cardoso said.