Naira Gains in Forex Market Amid Rising Interest Rates

After a tough exit in the second half of 2022, the Nigerian Naira is consolidating its bullish streaks at the Foreign Exchange (FX) desk of investors and exporters on Tuesday, November 22, 2022, amid an interest rate hike by the monetary authority.

At its last meeting of the current year (2022), the Monetary Policy Committee of the Central Bank of Nigeria (CBN) raised the benchmark lending rate by another 100 basis points to 16.50% in the aim of combating the deterioration of the consumer price index, Africa market forces disclosed.

Data from the FMDQ Exchange platform indicates that the naira exchange rate at the official counter has strengthened as demand for foreign currencies has reduced the total market supply.

Thus, market participants in the FX space traded the local currency for N445, representing a gain of 0.09% from the open rate of N445.38.

The exchange rate had crossed N446 at Nigeria’s NAFEX (Autonomous Foreign Exchange Fixing) window ahead of the recent appreciation. For importers and commodity makers playing the window, a small gain could mean a lot, FX analysts say.

Meanwhile, in the open market, the naira exchange rate remains stable as traders awaited the decision of the apex bank following a fake trade that occurred in the alternative exchange window after the CBN announced the naira. redesign.

According to MarketForces Africa channel verification on Tuesday, November 22, 2022, it was discovered that the spot exchange rate closed between N770 and N780 on the black market. In a recent report, the International Monetary Fund, IMF, said a unified market and exchange rate clearing remains key to building confidence.

Foreign investment in the country has declined as investors have been unable to repatriate US dollars overseas. This triggered an increase in the total foreign currency arrears which, if debited from external reserves, could put pressure on the country’s position in the foreign exchange market.

“Continued shortage of foreign currency, a stabilized exchange rate regime, rising inflation, limited debt servicing capacity and administrative restrictions on current transactions are fueling devaluation speculation,” the IMF said. to the Nigerian government.

He added that these factors hinder much-needed capital inflows, encourage outflows and limit private sector investment.

Furthermore, the mission reiterated its past recommendations to move towards a unified and market-clearing exchange rate by dismantling the various exchange rate windows at the CBN, accompanied by clarity on the exchange rate policy. and supportive fiscal and monetary policies.

In the medium term, the IMF said the CBN should withdraw from its role as the main foreign exchange intermediary, limiting interventions to smoothing market volatility and allowing banks to freely determine buying and selling rates. change.