Naira falls to N1,660/$
Nigerian naira may come under intense pressure following the U.S. Federal Reserve’s decision to slash key interest rates by 50 basis points to 4.75-5 per cent.
Indeed, this is the first rate cut in more than four years. The two-day meeting of the Federal Open Market Committee (FOMC), the rate-setting authority in the U.S. concluded on Wednesday.
While speaking after the FOMC meeting, the U.S. Fed Chair, Jerome Powell, said the American economy is strong overall and the labour market has cooled while the inflation has substantially eased. The U.S. federal fund rates now stand in the range of 4.75-5 per cent.
With the lowering of the interest rate in the United States, the sought-after Foreign Portfolio Investment (FPI) into Nigeria may face a fresh crisis.
On whether the cut in the interest rate by the United States will influence the decisions of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), which meets on Monday and Tuesday next week, an Economist, Kelvin Emmanuel, thinks the committee may not increase rate as inflation begin to decelerate in Nigeria.
He explained: “Even though the U.S. FOMC has cut interest rates by 50 basis points, I do not think the MPC in Nigeria will follow suit. The realities are different. The two-month consecutive drop in headline inflation might not be sustained because of the revision in the recommended retail price of Premium Motor Spirit (PMS) across Nigeria. I expect that members of the MPC will vote to hold more than they will vote for a cut.”
Emmanuel also held that the decision of the CBN to resume overdrafts to the Federal Government may backfire.
“I think the decision of the CBN to resume overdrafts to the FG without the securitized bonds fully paid back as stated in sections 38 of the CBN Act, and without a clear framework for upfront collateralisation through FG’s share of FAAC as a tool to ensure that expected credit losses for 12-months (according to IFRS) is provided for, is proof that we run governance in Nigeria on a man know man basis, and not according to the strict provisions of the law,” he stated.
He also stressed the need for the apex bank to release its yearly financial statement for Nigerians to interrogate the dealings of the CBN in the past year.
MEANWHILE, at the parallel market yesterday, the naira exchanged for the U.S. dollar at N1,660, British Pound was bought for N2,195 and sold for N2,220 while the Euro was exchanged for N1,840. The Canadian dollar was N1,280, the UAE Dirham exchanged for N430 while the Ghanaian Cedi was N100.
At the official market, the dollar was N1,594.37, British Pound was sold for N2,111.17 and the Japanese Yen was exchanged for N11.25 while the Chinese Yuan was 225.38.
Tolulope Alayande, who is an investment banker, noted that with a cut in interest rates in the United States, he expects the MPC to maintain the status quo.
He said: “I do not see why the MPC will tamper with the interest rate at this time. Most central banks around the world are upholding their rates while some are cutting. The U.S. just cut theirs. Although inflation has begun to decelerate, it may not be for long. I think that the two-month deceleration is enough to influence the MPC not to increase the rate. If rates are hiked now, the prices of food will escalate and that will worsen the plights of the Nigerian people. Government must resist the urge to add to the hardship in the land.”
At its 296th meeting on July 22nd and 23rd, 2024, the MPC raised the MPR by 50 basis points to 26.75 per cent from 26.25 per cent. It also adjusted the asymmetric corridor around the MPR to +500/-100 from +100/- 300 basis points and retained the Cash Reserve Ratio of Deposit Money Banks at 45 per cent and Merchant Banks at 14 per cent while holding the liquidity ratio at 30 per cent.
The committee said its decisions were influenced by the effect of rising prices on households and businesses and expressed its resolve to take necessary measures to bring inflation under control. It re-emphasised its commitment to the Bank’s price stability mandate adding that it remained optimistic that prices are expected to moderate soon despite the June 2024 uptick in headline inflation.
