CEM REPORT, MARKET| The Naira’s performance against the US Dollar presented a mixed picture on Wednesday, May 23rd, 2024. Following the Central Bank of Nigeria’s (CBN) decision to increase the benchmark interest rate by 150 basis points to a record high of 26.25%, the official foreign exchange (FX) market saw the Naira hold its ground. However, the parallel market, also known as the black market, witnessed a slight depreciation.
At the close of trading on Wednesday, the official market saw the Naira gain marginally by 0.21%. According to data from FMDQ Securities Exchange Limited, the Dollar was quoted at ₦1,462.59, slightly stronger than ₦1,465.68 on Tuesday.
Naira Intraday Fluctuations and Dollar Supply
The FX market summary released by the FMDQ revealed some intraday fluctuations. The intraday high closed at N1,531 per dollar on Wednesday, stronger than the previous day’s close of ₦1,549. However, the intraday low remained steady at ₦1,401 per dollar on spot trading.
Interestingly, the dollar supply offered by willing buyers and sellers on the official market declined significantly. Data showed a drop of 53.96% from $268.17 million on Tuesday to $123.45 million on Wednesday.
Analysts believe this could be due to a wait-and-see approach adopted by some market participants following the CBN’s policy announcement.
Black Market Weakening
While the official market displayed relative stability, CEM sources confirm that the parallel market saw the Naira depreciate against the Dollar. The local currency was quoted at ₦1,500 per dollar on Wednesday, a 1.47% decline compared to ₦1,478 on Tuesday.
This divergence between the official and parallel markets is a cause for concern. The black market often reflects a higher exchange rate due to factors like speculation and unmet demand for foreign currency at the official market. A widening gap between the two rates can create distortions in the economy.
CBN Maintains Other Policy Measures
Following its two-day Monetary Policy Committee (MPC) meeting, the CBN opted to retain some other key policy measures alongside the interest rate hike. The asymmetric corridor, which sets a band around the monetary policy rate for bank lending and borrowing, remained at +100/-300 basis points. Additionally, the Cash Reserve Ratio (CRR) of commercial banks and the liquidity ratio were both kept unchanged at 45.00% and 30.00% respectively.
If You Ask Me
The CBN’s policy decisions face a delicate balancing act. While the interest rate hike aims to curb inflation, it can also lead to slower economic growth by making borrowing more expensive for businesses and individuals. Experts will be closely monitoring the impact of these measures on inflation, exchange rates, and overall economic activity in the coming months.
The Naira’s performance on Wednesday offered a mixed bag. While the official market displayed some stability after the CBN’s interest rate hike, the black market saw a slight depreciation. The success of the CBN’s policies will depend on their ability to control inflation without stifling economic growth.
