In currency markets, the Nigerian Naira has performed inconsistently. Although it stayed at ₦1,750/$ on the black market, it officially strengthened from ₦1,675.62/$ on Monday to ₦1,659.44/$ on Tuesday. This improvement comes after The Central Bank of Nigeria (CBN) raised the Monetary Policy Rate (MPR) by 25 basis points to 27.50% as part of its hawkish policies. Additionally, the CBN kept the cash reserve ratios for merchant banks at 16% and deposit money banks at 50%. Governor Yemi Cardoso highlighted the CBN’s dedication to stability and fostering an environment that is conducive to investment.
Through the integration of Nigerian banks with Bloomberg’s BMatch platform, the CBN intends to improve the efficiency of currency trading by December 2. In foreign exchange trading, this automated method seeks to enhance price discovery, governance, and transparency. After President-elect Donald Trump announced higher taxes on imports from China, Canada, and Mexico, the US Dollar strengthened vs other currencies. Strong economic statistics and Federal Reserve policies kept the US Dollar Index from moving much higher than 106/107 points, but overbought conditions signal to possible stabilisation.
Significant volatility has been witnessed by the naira in recent years.
UBS predicts that the Fed will gradually lower interest rates, starting with a 25 basis point cut in December 2024 and continuing to do so through 2025. Despite issues like weaker labour markets and declining worldwide demand for manufacturing, the U.S. Economy is nevertheless strong. More so, significant Volatility has been witnessed by the Nigerian naira in recent years. The naira began 2024 trading at ₦907/$, but by September, it had fallen 69.9% year-to-date to ₦1,668.97/$.
Due to ongoing market pressures, the naira had brief rebounds in March and April, temporarily strengthening to ₦1,303/$ and ₦1,002/$, respectively, before continuing its downward trajectory. The naira has historically suffered from volatility brought on by changes in policy, inflation, and international economic conditions. In an effort to stabilise the naira and draw in investment, the Central Bank of Nigeria (CBN) has recently raised the Monetary Policy Rate (MPR) and automated foreign exchange trading through Bloomberg BMatch. These measures, however, have conflicting effects.
Tariff increases have an impact on international trade flows.
Ordinary Nigerians now pay more for imported items as a result of the naira’s depreciation, which has increased inflation. The average Nigerian’s purchasing power is still declining, even though more foreign interventions would stabilise the currency. Businesses can gain from the rules’ enhanced FX governance, but borrowing becomes more expensive as a result of the higher interest rates. This affects both the potential for Investment and operating costs. Improved price discovery and transparency are two ways that the higher MPR and currency stability policies boost investor confidence for foreign investors.
Nevertheless, in terms of dollars, the Devaluation of the naira lowers investment returns. Trade Tariffs and U.S. Federal Reserve policies are two examples of global economic trends that have a big impact on Nigeria’s currency and industry. Tariff increases, such as those recently suggested by the United States, have an impact on International Trade flows and may make Nigeria less competitive in the Export market. Global liquidity and capital flows are impacted by the Fed’s Interest Rate decisions, and oil revenues, a significant source of Nigeria’s foreign exchange, may drop as global demand changes.
Related Article: CBN Raising Monetary Policy Rate Since Feb
A stronger dollar results from higher U.S. interest rates, which increases the cost of servicing Nigeria’s external obligations and puts more pressure on the naira. On the other hand, these pressures might be lessened by the Fed’s anticipated rate decreases in 2025. There is hope for currency stabilisation due to Nigeria’s economic resiliency, as was demonstrated by a $8.9 billion trade surplus in 2024. It is anticipated that the Dangote Refinery’s activities and programs, such as “Naira for Crude,” will lower import prices and lessen the strain on the foreign exchange market. Still, to maintain the long-term stability of the naira, structural changes and improved budgetary restraint are required.