The Nigerian Naira closed last week slightly stronger against the US Dollar to N321.16 on Friday compared to N334.50 it ended with on Friday at the Interbank Foreign Exchange market. This came barely three days after the Central Bank of Nigeria’s Monetary Policy Committee increased interest rates in order to attract foreign investors to the country.
The local currency weakened further against the Pound Sterling as it exchanged for N412.4714 on Friday compared to Wednesday’s N492 and exchanged for N347.8995 as against N413 posted on Wednesday.
The local currency remained at N378/$1 at the parallel market on Friday, July 29, as it was on Thursday, July 22. Currency traders said this would leave Naira’s black market value unchanged since it dropped three points from N375 to trade at N378 by midday on Wednesday, July 27.
This also comes a month after the CBN introduced a new exchange rate policy that allowed the Naira to float freely, by allowing the forces of demand and supply to determine the exchange rate of the currency.
According to foreign exchange traders, “investors were pushing the currency lower to test the limit of how far it could fall, given a spread of almost 12 per cent between the official and black market Naira rates.”
Some economic experts in Nigeria have said that the depreciation is not as a result of the increase in interest rate but due to the effect of the forces of demand and supply determining the rate, which is what the CBN wants.
It should be noted that fluctuation of the Naira has recently generated a lot of comments, caused the CBN to pay more attention to price stability. One of the effects of the Guidelines which liberalised the foreign exchange market, is the increase in balances on foreign currency denominated loans and advances in the books of banks especially facilities that had been fully provided for under the previous exchange rate regime, but were yet to be written off, per CBN’s extant regulation under Section 3.21(a) of the Prudential Guidelines for Deposit Money Banks in Nigeria of July 1, 2010.
In line with this, the apex banking regulator in a letter to all banks signed by Mrs Tokunbo Martins, Director of Banking Supervision, CBN, noted that all foreign currency -denominated loans should be reviewed and adequate provisioning made on all delinquent ones in line with the Prudential Guidelines for Deposit Money Banks in Nigeria effective July 1, 2010.