The naira crashed to another all-time high on the black market, trading at an average of N722/$1 on Tuesday morning, compared to N713/$1 recorded in the previous trading session. This is according to information from FX black market traders, who spoke to Nairametrics.

Trading in the unofficial market has been in free fall so far in the year, with currency scarcity being the main cause of currency depreciation. The economy continues to suffer from a decline in foreign exchange inflows, which has seen the exchange rate hit a record high due to global headwinds.

Contrary to the beginning of the year, the naira depreciated by more than 21% compared to N565/$1 recorded on December 31, 2022. In the same spirit, the margin between the official market and the parallel market has increased. is also widened, creating more arbitrage.

The exchange rate closed at 436 naira/$1 at the Investors and Exporters counter on Monday, taking exchange rate spreads to a record high of 286 naira/$1. The amount of currency trading at the official window also fell 26.4% on Monday to $78.1 million from $106.1 million recorded in the previous trading session.

All eyes are now on the Monetary Policy Committee (MPC) briefing later today, to see the leadership of the apex bank regarding the movement in interest rates and the policy guidance that has raised the interest rate benchmark by 250 basis points over the past four months.

The news continues after this announcement

Similarly, Nigeria’s inflation rate hit a new 14-year high in August 2022 at 20.52% from 19.64% recorded the previous month, largely due to the depreciation of the naira against the dollar. American. It should be noted that the decline in the local currency is not unique to Nigeria as it affects other economies around the world as well.

Earlier in the week, Nairametrics reported that the pound fell to a record low against the US dollar, following the UK’s biggest tax cuts in 50 years, while rising interest rates interest continues to fuel fears of an economic slowdown. In the same vein, the Ghanaian Cedi continues to fall against the US dollar as the inflation rate strengthens.

The news continues after this announcement

A major concern of the monetary policy committee will be the rate of the local currency’s fall on the black market, despite efforts to manage volatility at the official counter.

What the experts say

The experts had predicted that the CBN may be forced to hold the interest rate due to the nature of inflationary pressure in Nigeria and its multiple hikes in May and July 2022. Dr. Muda Yusuf, the CEO, of the Center for the Promotion of Private Enterprise (CPPE), maintained that the rates would be kept constant. He said “we cannot have a tightening policy in an economy struggling with fragile growth and high unemployment. But credit conditions are already very tight. The CRR cash reserve requirement is 27.5%, one of the highest in the world.

The effective CRR for some banks is around 50% or more. The liquidity ratio is 30%, the MPR is 14%. These restriction thresholds are already high. Financial intermediation is already significantly hampered. “

Also, Ezekiel Gomosan economist from Jos Business School argued that the CBN can keep monetary parameters constant, considering that the nature of inflation in Nigeria cannot be easily controlled by monetary policies.

Ordinarily, inflation can be controlled by interest rates, however, this is not necessarily the case with Nigeria, due to the huge size of the informal sector. A significant part of the population is not taken into account in the financial system,” he said.

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