Naira appreciates by 172 kobo as interest rate rises

[MrVan]

By Babajide Komolafe

LAGOS—The naira, yesterday, appreciated by 175 kobo while short term interest rate rose in response to the decision of Central Bank of Nigeria, CBN, on Tuesday to tighten money supply

From N160.75 per dollar, the  interbank foreign exchange rate declined by 1.1 per cent to N159 per dollar translating to 175 kobo appreciation for the naira.

At the official foreign exchange auction conducted by CBN, the naira also gained five kobo as the official exchange rate fell marginally to N155.84 per dollar from N155.89.

On Tuesday CBN at the end of its monetary policy committee meeting, MPC, tightened money supply to check inflationary pressure. The apex bank raised the cash reserve requirement,  CRR, of banks to 12 per cent from 8.0 per cent.  CRR is the portion of total assets banks must keep as cash.

In response, interest rate on overnight lending in the interbank money market rose to 17.5 per cent from 15.8 per cent on Tuesday.

Also, to reduce demand for foreign exchange, especially for speculative purposes, CBN reduced the amount of foreign exchange banks can hold per time, known as net open position limit, to 1.0 per cent of the shareholders' funds from 3.0 per cent.

In response to this  measure, the foreign exchange sold by the CBN at yesterday's  auction dropped by 27 per cent to $217 million from $300 million.

The decision of the apex bank to reduce the net open position of banks, according to analysts is good for the naira.

Vanguard Nigeria