Naira appreciates after CBN interest rate hike

The naira strengthened sharply Tuesday after a surprisingly aggressive central bank interest rate hike on Monday designed to draw a line under the currency. The naira opened at N158.60 against the dollar on the inter-bank market, up 3.4 per cent from Monday’s close of N164.20 and 5 per cent firmer than the record low of N167.8 plumbed shortly before Monday’s unscheduled central bank meeting.
The Central Bank of Nigeria (CBN) hiked its benchmark interest rate by 275 basis points to 12 per cent and implemented several other tightening measures to counter pressures on the currency and inflation. Most analysts had expected the CBN to raise rates by 100 basis points at the extraordinary meeting, which was called in response to a sharp depreciation of the naira.
The tightening will create an incentive for investors to hold the naira and free up dollar supply, but the central bank will have to back its actions by meeting dollar demand at its auctions, dealers said..