By Oludare Mayowa
Nigeria’s naira experienced a significant 5.45 percent decline against the dollar last week, reaching N870 on the parallel market from Monday’s closing rate of N825.
This marks the lowest level for the local currency since its devaluation and transition to deregulation during the military administration of Ibrahim Babangida in 1989.
In contrast, the naira managed to gain 2.19 percent on the official foreign exchange window during the same five trading days, closing at N777.82 to the dollar on Friday compared to N795.28 on Monday.
However, analysts are projecting a possible further weakening of the naira on the parallel market, while expecting it to remain range-bound on the official window.
This is due to the country’s monetarists potentially adjusting the interest rate at the end of its meeting this Tuesday in Abuja in an effort to tackle the surging inflation in Africa’s largest economy.
The Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) convened on Monday to decide on the interest rate direction, seeking remedies against rising inflation amid major reforms introduced by the administration of President Bola Tinubu.
Experts forecast that the monetarists may increase the interest rate by at least 100 basis points at the end of the MPC meeting, raising it to 19.5 percent from the previous rate of 18.5 percent.
President Tinubu’s reforms, which include the removal of the fuel subsidy and the devaluation of the currency to unify Nigeria’s multiple exchange rates, have led to challenges such as higher fuel prices and liquidity issues in the economy, contributing to the recent peak of the inflation rate at 22.79 percent by the end of June 2023, from 22.41 percent in the previous month.
The National Bureau of Statistics (NBS) also acknowledged that the full impact of the fuel subsidy removal and exchange rate unification might not be entirely reflected in the recent headline inflation figure, as data collection for June was conducted until the middle of the month.
The NBS anticipates a more noticeable effect on the inflation rate in the coming months.
The President has yet to announce specific policy measures to mitigate the impact of these reforms on the general populace. A proposed conditional cash transfer of N8,000 per month to vulnerable Nigerians was met with widespread anger, with critics suggesting that the funds could be better utilized to support productive activities in the economy.
Despite the challenges, the approved funds by the National Assembly for the fuel subsidy removal palliative remain unallocated, with the government promising a review of civil servants’ wages.
The situation has raised concerns about the overall economic impact and potential implications for the populace.
Would the monetarists opt to raise interest rates, adding to the woes of manufacturers and businesses dealing with growing input costs and declining consumer purchasing power, or would they prefer to hold the rate to mitigate the impact of the last rate hike?
The market and investors may have to wait until Tuesday when the acting governor of the CBN is expected to read out the decision of the rate-setting committee’s 12 wise men and women.
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