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Nigeria’s Naira Hits Fresh Low Against Dollar Despite Rate Hike - BLOMBERG
(Bloomberg) -- Nigeria’s naira fell to a fresh low against the dollar, shrugging off on a surprise interest-rate increase amid ongoing local scarcity of the US currency.
The naira slipped to 1,677 per dollar at the official close on Wednesday, according to FMDQ data complied by Bloomberg, taking its losses since the end of last week to 8.2%. The decline reflects dwindling foreign capital inflows into the West African nation as investors wait for concrete evidence the government will deliver on ambitious fiscal reforms to boost revenue collection and pump more oil.
The decline came despite an unexpected 50 basis point rate increase on Tuesday by the Central Bank of Nigerian to 27.25% as it battles inflation near a three-decade high.
“At some point we saw lots of flows into the market from foreign portfolio investors. That has slowed down considerably,” said Muyiwa Oni at Stanbic IBTC Bank Plc. “If the economy is able to generate far more dollars from oil and non-oil sectors it will increase investor confidence and inflows and help the naira.”
Nigeria has consistently failed to meet its OPEC target for pumping oil because of years of under investment in the industry.
Africa’s largest oil producer, which earns the bulk of its foreign currency from crude exports, also spends precious dollars importing refined petroleum, as well as subsidizing fuel prices in the domestic market that cost it $10 billion in 2022.
That situation may now be changing, after a mega refinery near the commercial hub Lagos owned by billionaire Aliko Dangote began producing gasoline in recent weeks. But dollars remain scarce in the local currency market, hurting the naira and prompting the central bank to repeatedly intervene by selling dollars to the country’s almost 6,000 registered Bureau de Change, including on Wednesday.
“Volatility has been a common issue with the naira and that looks set to continue unless we see continuous inflows to support liquidity,” Ayodeji Dawodu at BancTrust Investment Bank Ltd. “The hike in rates provides an indication that the central bank expects inflationary pressures to remain high going forward, which could add to weakness in the local currency.”
