Following the increase in Nigeria’s interest rate by the Central Bank of Nigeria (CBN), the exchange rate between the naira and dollar depreciated on Wednesday, 26 January 2023.
According to the data from the FMDQ Exchange, the naira appreciated against the United States currency by 0.06 per cent at the end of trading.
The exchange rate between both currencies had increased as high as N462 per dollar, and as low as N440/$1 the same day, before closing at N461.70/$1.
Prime Business Africa gathered that the exchange rate between the naira and the dollar depreciated by N0.30 kobo when compared to the N462/$1 it closed Tuesday’s trading.
During the trading session, traders transacted $109.82 million worth of foreign exchange (forex) on Wednesday, the FMDQ Exchange revealed.
This is $2.22 million or 1.9 per cent below the $112.04 million forex that was transacted a day before. This is also lower than the $132.77 million worth of forex traded on Monday.
Naira’s gain was on the back of the central bank raising interest rate to 17.5 per cent on Tuesday, a move that will attract foreign investors to Nigeria’s securities market and increase foreign exchange inflow.
This means that the foreign exchange of Nigeria might increase in response to the raise in interest rate, as foreign investors will look to gain from the hike by buying into fixed-income assets within the country.
Prime Business Africa notes that an increase in interest rate is one of the ways to boost a country’s foreign reserves, which will in turn enable traders in the foreign exchange market to access more dollars.
Excess foreign exchange will reduce demand pressure for forex on the naira, strengthening the Nigerian currency in the long run.
Although the Governor of the central bank, Godwin Emefiele, had raised the interest rate to rein in inflation, in a bid to cut down the cost of living in the country.
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