The naira gained for the fourth straight day on Monday as the embattled currency extended its longest winning streak in over a month.
The naira, which traded at N1,534 per US dollar on Monday, has strengthened since the Central Bank of Nigeria (CBN) increased the Monetary Policy Rate (MPR) last week.
The naira has now appreciated by 5.33 percent compared to N1,615.94 on February 27 when the CBN delivered a jumbo rate hike, according to data collated from the FMDQ Securities Exchange.
Monday’s gain was despite a decline in liquidity at the official foreign exchange (FX) market.
The daily foreign exchange market turnover declined by 65.71 percent to $178.63 million on Monday from $296 million recorded on Friday.
The CBN raised its Monetary Policy Rate, also known as its benchmark interest rate by 400 basis points to 22.75 percent on Tuesday from 18.75 percent in July 2023.
The Monetary Policy Committee (MPC) also adjusted the asymmetric corridor around the MPR to +100/-700 from +100/-300 basis points, raised the Cash Reserve Ratio from 32.5 per cent to 45.0 per cent, and retain the Liquidity Ratio at 30 per cent.
The CBN seeks to mop up naira liquidity and reduce the naira cash chasing scarce dollars with the hope it will help stabilise the world’s worst performing currency after the Lebanese pound this year.
The MPC members voiced their confidence in the ongoing reforms within the foreign exchange market, expressing belief that the recent measures by the CBN will ultimately lead to the restoration of price and exchange rate stability.
Danelee Masia, an economist at Deutsche Bank AG, forecasts an exchange rate of 1,450 naira to a dollar for the year. “It has been one of the most volatile episodes for the naira. It’s because we are moving toward a price-discovery system,” Masia told Bloomberg Television before the rate decision.
“The reforms already implemented will help us see a stable naira of around 1,450 for the year. Anything that gets delivered above 300 basis points will be welcomed by the market,” Masia said.
The naira has shed over 40 percent of its value against the dollar in 2024.
