Following the significant raise in the benchmark interest rate, the naira firmed up at the official Wholesale Dutch Auction System (WDAS) window yesterday, closing at N150 to the dollar compared to N156.91 at the previous auction.
The Central Bank of Nigeria (CBN) met all the demand, selling $551.666, compared to $400 million sold on Monday.
This signifies the intention to continue to defend the currency and the efficacy of the CBN action.
The Central Bank announced a 275 basis points increase in the benchmark interest rate to 12 percent on Monday. CBN governor, Lamido Sanusi stated that maintaining exchange rate stability, especially in times of global uncertainty, is crucial to the mandate of price stability.
The naira had been under pressure in the last two weeks, breaking through the +/-3 per cent band set by the regulator, and hitting a high of N156.91.
At the interbank yesterday, the naira closed at 157.10, gaining from Tuesday’s close of 158.90 and also appreciated at the parallel market to N163 from N165 the previous day.
The Central Bank said it would improve its monitoring of the market in order to reduce speculation? and has already commenced full investigation of compliance with rules governing foreign exchange transactions by authorized dealers with the view to sanctioning all infractions and improve the level of supervision and compliance in the market.
Analysts predict that the naira will recover further as the CBN action begin to manifest.
“The preferred approach was to tighten significantly, underscoring the authorities? commitment to price stability and dealing with the causes of excessive demand for foreign exchange in each of Nigeria's foreign exchange markets (official, interbank and parallel) at their source,” said Razia Khan, regional head of research, Africa, at Standard Chartered Bank.
She said with the CBN moves, speculative demand for foreign exchange would no longer be attractive.
?