The Nigerian naira remained on edge on Tuesday morning as investors waited for the upcoming interest rate decision by the country’s central bank. The official USD/NGN exchange rate stood at ~800, a few points below the year-to-date high of 820. On the other hand, the black market rate has surged to a record high as the spread between the two widens.
CBN makes another move to make things better
The Central Bank of Nigeria (CBN) will conclude its meeting today and deliver another interest rate hike in a bid to fight the soaring inflation. This is coming at a difficult time for Nigeria’s economy.
The Nigerian currency has plunged while inflation has surged to a record high. Data shows that the official exchange rate against the dollar started the year at 450. This means that Nigerians with naira savings have seen the value of their holdings tumble.
There are evidences that the depreciating naira is causing an indirect salary cut while inflation is the reason for indirect tax.
Nigeria’s inflation has jumped and the news is sad. According to a latest report, the most recent data showed that inflation has moved to above 20%. And this could worsen after the main oil and gas company boosted prices by 16% as I wrote here. In a report, Fitch warned that Nigeria’s inflation will average 25.1% this year. It said:
“These reforms will exert significant upward pressure on consumer prices in H2, 2023, with inflation set to average 25.1 per cent in 2023, the highest annual rate since the 1990s. This will further erode consumers’ purchasing power, clouding the outlook for private consumption.”
The country has also seen the cost of borrowing grow. Interest rates moved from 11.50% in March 2022 to 18.50%. Analysts believe that the bank will deliver another 50 basis point rate hike in its attempt to save the crashing naira.
Will the move succeed?