The CBN recently increased the
interest rate from 12% to 14% as Nigeria continues to battle a slowing economy,
inflation, and potential recession.
Several analysts have predicted
that the Naira, still suffering from bad CBN policies and a lack of foreign
investment amidst enormous demand for the greenback, will bear the brunt of
most of the economic pressure.
Inflation has been on the rise,
oil production has been cut down due to the activity of militant groups, as the
CBN seems unable to find a clear cut route out of the quagmire.
Though the CBN implemented a
so-called 'float' of the Naira after an 18-month peg, the currency has
continued to drop dramatically on the interbank market and the parallel market.
Little trading is taking place on
the interbank market with an average of $40 million a day, according to South
Africa-based Standard Bank Group. In 2013, daily trading volumes were as high
as $1 billion.
Trading on the interbank market
has also been stunted because dollar purchases have to be backed by customer
orders, which means primary dealers and other banks can't trade for a profit on
their own behalf.
After meeting with investors last
week, the CBN has come out to say that nothing has changed. “Investors should
allow the market some time to work itself out,” said spokesman Isaac Okorafor,
according to a Bloomberg report. “No one is fixing any prices. The market is
not bound to pander to unrealistic and speculative projections.”
Analysts are already predicting
that it is very likely that the Naira will eventually drop further and hit the
N400/dollar mark in the near future.
Even if the CBN does eventually
free the Naira properly, Nigeria still faces a tricky situation. With inflation
rising, the economy weakening and drop in oil production, the future holds a
lot of pressure for the Naira as the market pushes for more flexibility.
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