On Tuesday, Nigeria’s central bank announced a supersized 400-basis-point rate hike in the fight against inflation and its depreciating currency. Hard to say if this move will stop the naira’s depreciation. Since January 2022, it has declined by 74% against the US dollar. And Nigeria is not alone. Other African countries have had a rough go over the past two years. The Ghanaian cedi, Kenyan shilling and South African rand are all down over the same period.
Africa’s rapidly depreciating currencies are eroding households’ savings, increasing costs for businesses and deterring long-term foreign investment at a time when the region’s economies are seriously struggling. For policymakers, the only sustainable interventions ought to be aggressive export promotion and free floats to let markets determine currency price levels.
