Nigeria’s naira decline prompts rate discussions

The Nigeria’s naira has sharply declined since mid-April, with a 28-year high inflation rate likely prompting the monetary policy committee to raise rates again.

According to a Bloomberg survey, most economists anticipate a rate hike, with varying degrees of increase. Governor Olayemi Cardoso will announce the MPC’s decision in Abuja on Tuesday.

In the first quarter, the Monetary Policy Committee raised rates by 6 percentage points to 24.75 per cent to tackle inflation and stabilise the currency. Giulia Pellegrin of Allianz Global Investors suggests further action may be necessary given recent currency fluctuations.

Investors are eager for tightening measures from the next MPC meeting, considering the currency’s significant depreciation against the dollar.

This decline follows President Bola Tinubu’s decision to relax foreign-exchange controls in June, resulting in a 69 per cent depreciation against the dollar and soaring inflation exceeding the central bank’s target range.

Yvonne Mhango expects another 200-basis-point increase at the Central Bank of Nigeria’s May 21 meeting to address price hikes. Investors also call for more liquidity-tightening measures and enhanced transparency in the currency market.

Ayodeji Dawodu highlights the need for transparency and increased intervention in the official market. Concerns persist about the quality of reserves after a significant decline in April, with liquid reserves decreasing by almost 5 per cent to $31.38 billion, slightly recovering to $31.78 billion as of May 16.