Worries as Naira slumps further to N1,100/$ in unofficial market

The rivalry between the Naira and United States of America dollar further went south yesterday as the Nigerian currency slumped to a new low of N1, 100, allowing the dollar to garner more strength against it in the parallel market.

Traders at the black market quoted between N1, 100 and N1, 110 for a dollar. On Tuesday, the exchange rate at the official Nigerian forex market fell to the lowest ever point when it traded for N848 to the dollar.

By implication, this development has further put pressure on the struggling economy, which would further ensure a hike in the cost of commodities, including food, goods, transportation, among others.

Meanwhile, the Central Bank of Nigeria (CBN) has directed banks to revalidate the Magnetic Ink Character Recognition (MICR) codeline details for correctness from November 1, 2023. The apex bank stated that this practice would be penalised in accordance with the Sanctions Grid.

Dated October 9, 2023, the circular, which was signed by Director, Banking Services Department, Sam C. Okojere with reference number BKS/DIR/CIR/GEN//001/003 addressed to all DMBs, read in part: “Please recall that the Central Bank of Nigeria issued the Nigerian Cheque Standards (NCS) and Nigeria Cheque Printers Accreditation Scheme (NICPAS), version 2.0 on 18 of September, 2018 to increase the efficiency and security of the Nigeria Clearing System.

“It has come to our notice that MICR rejects have been on the increase and in furtherance of the bank’s effort to reduce the number, Deposit Money Bank (DMBs) are hereby directed to contact their personalizers and reiterate the need to revalidate the MICR codeline details for correctness in accordance with the NCS and NICPAS version 2.0.”

IN a related development, an economist, Lukman Otunuga, has said that the CBN may likely raise interest rates at its policy meeting for the fifth consecutive time.

According to him, this vicious cycle of rising inflation and interest rates certainly presents a risk to Nigeria’s fragile economy. Otunuga, who doubles as the Senior Research Analyst at FXTM, said the question is whether the central bank will move ahead with a 25bp hike or opt for a larger move to tame inflation.

While reacting to the CBN’s recent removal of FX restrictions on 43 items, he said the removal sparked some optimism as dollar supply surged.
This development, he said, offered an opportunity for the Naira to fight and was also welcomed by the IMF, which acknowledged the series of reforms aimed at fixing Nigeria’s economy.

Otunuga said inflation remains piping hot in Africa’s largest economy, while interest rates are currently at their highest levels since the monetary policy rate was adopted in 2006.

According to him, it is worth noting that the inflation menace continues to draw strength from the removal of fuel subsidies, devaluation of the official Naira and security issues in food production regions.

He said given how inflation is projected to jump in September to 27.1 per cent, the CBN is likely to raise interest rates at its policy meeting this week for the fifth consecutive time.

Speaking on the oil prices, he said the global commodity has the potential to extend gains due to escalating tensions in the Middle East, home to almost a third of global oil supply.

The economist said oil prices ended last week gaining over seven per cent, thanks to mounting geopolitical risks.

According to him, bulls are likely to draw additional strength from the U.S. tightening its sanctions against Russian crude exports. Supply concerns remain rife with growing concerns over the conflict between Israel and Hamas spreading through the region, resulting in major disruptions in an already tight market.

He said while oil is likely to remain supported by supply-side factors, the demand side of the equation may create headwinds down the road, especially when factoring global recession fears. “Looking at the technical picture, Brent bulls have a steep hill to climb before heading anywhere near $100. But the daily close above $90 last Friday could be the first signs of bulls reclaiming lost territory,” he added.