The Naira tumbled to a fresh record low against the dollar this week, trading at N734 to the dollar on the unofficial market from N715 at last week’s close.
Nigeria is not alone in this free fall, the Ghanaian cedi and the Egyptian pound sank to new lows, with the South African rand continuing on its free fall.
The sharp decline came even as the Central Bank of Nigeria (CBN) hiked rates by 150 basis points (bps) to 15.5 per cent as it seeks to combat high inflation, which the bank says has been exacerbated by worsening insecurity, broken critical infrastructure and high import costs on items such as wheat.
Destruction of farmland and livestock due to recent flooding is also threatening shortages of agricultural produce. In the short term, we expect the Naira to continue its depreciation against the dollar amid increased demand for FX in the parallel market.
It will be recalled that naira on Tuesday fell to a record low of N725 per dollar at the parallel market following increased demand for the greenback amid a supply shortage.
Analysts thought the negative trend would reverse after the apex bank hiked rates, but the reverse was the case as at on Thursday.
Also, the cedi dived to a new record low this week, trading at 10.38 from 10.11 at last week’s close. Ghana said it had started discussions with the IMF this week as it seeks to secure a $3 billion three-year loan package to stabilise its economy, given that surging borrowing costs have shut the country out of global capital markets.
The IMF is expected to conclude an 11-day mission to the country at the end of next week. Market watchers predict that Ghana will need to restructure its debt to unlock any IMF financing. Fitch Ratings cut Ghana’s credit rating one notch to CC, signaling a ‘default of some kind appears probable’. Against that backdrop, we expect the cedi to continue weakening beyond the 10.50 level in the near term.
The Egyptian pound hit a record low 19.53 against the dollar this week, before recovering to trade at 19.48—marginally stronger than last week’s close of 19.49. Dollar scarcity is ongoing in the country, with Egypt’s net foreign exchange reserves standing at $33 billion in August, the lowest level since 2017.
