(Bloomberg) -- Nigeria’s naira has weakened to a four-month low, defying central bank action to shore it up including increasing interest rates for a 12th-straight meeting earlier this week.
The naira closed at 1,603.8 to the dollar on Thursday, its lowest level since March 14, as foreign exchange market liquidity fell 23% from the day before to $131 million.
The Central Bank of Nigeria, which raised rates 50 basis points to 26.75% on Tuesday, has repeatedly supported local liquidity by selling dollars in recent days, traders said.
The CBN sold foreign currency to 29 dealer banks on Monday and Tuesday at an exchange rate of 1,470-1,510 naira per dollar, the Abuja-based bank said in statement on its website.
The “sales will need to be consistent for the naira to find a level and market confidence to improve” said Samir Gadio, head of Africa strategy at Standard Chartered Plc in London by email.
Dollars have been getting scarce in the domestic Nigerian market despite a jump in the gross reserves to $37.05 billion as of July 18, compared with $34.70 billion at end-June, according to central bank data.
“The fundamental issue continues to be a persistent lack of FX supply,” Patrick Curran, a senior economist at Tellimer Ltd., said in a client note. “Without a significant and sustained increase in FX supply, sustained currency appreciation will remain elusive.”
Officials have blamed seasonal demand for dollars as wealthy Nigerians go on holiday overseas and pay foreign school fees.
The naira is down 43% this year, making it the second-worst performing currency tracked by Bloomberg globally after the Lebanese pound. It has lost around 70% of its value since President Bola Tinubu relaxed currency restrictions to attract foreign investment, alongside partially lifting fuel subsidies.
The moves have contributed to inflation quickening to near a three-decade high, prompting the central bank to raise borrowing costs a cumulative 15.25 percentage points since early 2022.
At its meeting, the central bank also widened its “asymmetric corridor,” lifting the cost at which lenders can borrow to 500 basis points above the policy rate and adjusting the return on their deposits to 100 basis points below the benchmark. It followed this up by offering a record yield of 22.1% at a treasuring bill auction on Wednesday.
Increased efforts to mop up excess liquidity in the banking system is “essential to rein in recent exchange rate pressures,” Curran said.
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