Naira Faces Challenges Despite Dollar’s Decline, CBN Postpones MPC Meeting
The Nigerian naira is grappling with structural challenges within the country’s economy, preventing it from capitalising on the recent decline of the US dollar, which reached its lowest point in two months.
Despite the dollar index dropping, currency speculators in the black market maintained pressure on the naira. The postponement of the Monetary Policy Committee (MPC) meeting by the Central Bank of Nigeria (CBN) added to concerns, signaling potential efforts to stabilize the country’s currency, which has depreciated by more than 50% this year.
Scheduled for Monday and Tuesday, the MPC meeting was postponed for the second time since Governor Olayemi Cardoso assumed office in September.
Investors are now uneasy, questioning the CBN’s strategy to support the currency, while uncertainties linger regarding the naira’s trading band, the resolution of foreign exchange backlogs, and potential liquidity injections into the market.
In the Peer-to-Peer (P2P) market, the naira traded at an intra-day high of N1138 on Tuesday, significantly deviating from the official market rate. Data from FMDQ indicated a drop in rates from N791.75 per dollar on Friday to N750.14 per dollar on Monday.
While President Tinubu’s move to lift currency controls was initially welcomed by investors, facilitating easier access to foreign currency, the expected impact has yet to materialize.
JPMorgan’s estimate of Nigeria’s net foreign exchange reserves as of the end of 2022 is $3.7 billion, considerably lower than previous projections.
The National Economic Council disclosed in August that the balance in Nigeria’s crude excess account is a mere $473,755, contrasting sharply with the $20 billion peak in 2008.
This discrepancy occurred when the federal government withdrew dollars to support the naira and budgetary spending.
The US dollar’s recent downtrend continued into the new week, reaching a two-month low with the dollar index at 103 points.
Bearish signals are emerging amid speculation that the U.S. central bank may halt rate hikes, gaining traction after last week’s lower-than-expected inflation data.
Investors are now closely watching for potential interest rate cuts by the Federal Reserve.
Despite dovish remarks by Fed officials supporting a softer dollar, market pricing hasn’t fully factored in the possibility of reactivating tightening policies if needed.
There’s a growing consensus around the idea that the Fed might pivot towards a new interest rate phase.
Recent geopolitical tensions and a slowdown in news flow have increased investors’ risk appetite, contributing to the dollar’s downward trend.
In technical terms, the dollar index, after remaining stable in the face of escalating geopolitical issues in October, entered a correction trend, losing support in the 104.2 band and heading towards the main support zone in the 102.5–103 band.
The overall outlook remains negative following last week’s significant drop.
Source: Nairametrics
