Why the naira depreciated against the dollar amid rise in FX reserves

• The Nigerian currency, the naira crashed, crashed against the US dollar in the official window
• The naira traded at N1,658.66 per dollar against the N1,562.33 it traded the previous day
• The development comes amid an increase in Nigeria’s external reserves to $37 billion, the first time under President Bola Tinubu

Legit.ng’s Pascal Oparada has reported on tech, energy, stocks, investment and the economy for over a decade.

The Nigerian currency crashed again on Tuesday, September 24, 2024, amid a hike in interest rates by the Central Bank of Nigeria (CBN).

The apex bank increased Nigeria’s interest rates from 25.75% to 27.25, citing an increase in premium motor spirit (PMS) prices, otherwise known as petrol.

Naira crashes in official market against the dollar as CBN raises rates Credit: Bloomberg/Contributors
Source: Getty Images

Naira crashes amid hike in interest rates

The interest rate increase came despite the dip in inflation reported by the National Bureau of Statistics (NBS).

Data from the FMDQ Exchange shows that the Nigerian currency dropped to one of its lowest levels in months, at N1,658.48 per dollar on Tuesday, September 24, 2024, as against the N1,562.66 per dollar it traded on Monday, September 23, 2024.

Information from the Nigeria Autonomous Foreign Exchange Market (NAFEM) shows that currency dealers quoted the dollar at a high of N1,682 per dollar and a low of N1,570.

Investors spooked by CBN rate hikes

The dollar supply in the official market hit $166.33 million.

Janet Ogochukwu, an economist and senior banker with one of the tier banks, said the naira dropped in value because CBN’s hike in interest rates spooked investors.

She disclosed that the CBN's rate hikes will affect the local currency and the country’s bonds.

“I am sure investors were spooked when the CBN hiked interest rates, which badly affected the naira’s value.“The naira is now within the N2,000 per dollar threshold and could hit that milestone on or before December,” she said.

The development comes as Nigeria’s external reserves hit a 22-month high of $37.31 billion, showing significant FX inflows into the country’s coffers.

However, the inflows have failed to positively affect the naira, which became one of the worst-performing currencies in the world, according to a recent Bloomberg ranking as of September 20, 2024.

CBN, currency traders give new exchange rates as the naira depreciates

Legit.ng earlier reported that Naira has kicked off the new week on a low against the US dollar in NAFEM.

New data from FMDQ securities shows that the naira depreciated to N1,562.66/$1 at the close of business on Monday, September 24, 2024.

The new exchange rate represents a 1.37% decline compared to the previous closing rate of N1,541.22/$ on Friday last week.

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Source: Legit.ng