The Nigerian naira continued its alarming descent on Thursday, hitting an unprecedented low of 1,050 against the US dollar in the parallel market. This free-fall is attributed to growing concerns surrounding the postponement of the Monetary Policy Committee (MPC) meeting.
Just a day earlier, the naira was trading at 980 per US dollar, and the further depreciation underscores the overwhelming demand for dollars compared to its limited supply.
The Central Bank of Nigeria (CBN) has delayed the scheduled rate-setting MPC meeting, which was initially planned for September 25-26. Adding to the uncertainty, the confirmation of the new CBN governor, Olayemi Cardoso, who is a former Citigroup executive, remains pending. Additionally, the acting governor and four deputy governors have resigned, creating a significant policy vacuum at the highest level.
The MPC, led by the CBN governor, convenes bi-monthly to make decisions on the Monetary Policy Rate (MPR), often referred to as the benchmark interest rate. This committee holds the highest authority in shaping monetary and financial policies, reviewing economic conditions, and determining the appropriate policy stance in the short to medium term.
The recent postponement of the MPC meeting has fueled speculations and uncertainties in the financial sector. The CBN, which has maintained a hawkish monetary policy stance since May 2022 to combat inflation, has not yet provided a new date for the rescheduled meeting.
Yemi Kale, partner and chief economist at KPMG Nigeria, commented on the situation, stating that the delay likely aims to allow the new CBN governor more time to establish a consensus before making any interest rate decisions, emphasizing the importance of effective communication in any policy shift.
Financial planning expert Kalu Aja expressed his surprise at this unprecedented delay in holding an MPC meeting, especially for a nation that is not in a state of war or crisis. He emphasized the importance of unity within the leadership team during such times.
The continued depreciation of the naira is driven by strong demand for dollars, primarily from individuals traveling abroad for various purposes, such as business, education, medical treatment, or tourism. Stears Africa FX Monitor, a data and intelligence company, predicts ongoing volatility in the naira’s value, attributing it to various factors including fiscal policies, global market trends, inflation rates, interest rates, policy events, and geopolitical influences.
The parallel market rate of the naira is now approximately 29% weaker than the official exchange rate, which stood at 770.71 naira per dollar on the FMDQ OTC trading platform as of Wednesday. These rates have diverged significantly since sweeping currency reforms were announced in June, following the election of President Bola Tinubu.
Market observers note that the central bank has remained relatively passive this month, with limited dollar supply to the official window. This inaction has contributed to the rapid depreciation of the naira, which started the month at around 900 naira per dollar.
In addition to businesses seeking hard currency for imports, ordinary citizens fearing further naira depreciation have also joined the rush to buy dollars.
Onoja Usman, Managing Director/CEO of Lovonus Microfinance Bank Limited, mentioned the ongoing reform at the CBN and the absence of policy continuity due to the removal, rather than retirement, of the previous governor and deputies, highlighting the anticipation of new policies in the near future.