The Central Bank of Nigeria (CBN) increases interest rates, strengthening the naira in the official market, while its value in the black market remains unaffected.
The naira strengthened to N1,659.44/$ in the official market on Tuesday, up from N1,675.62/$ on Monday, according to FMDQ data. However, on Wednesday morning, the currency in major cities stays stable at N1,750/$ on the illicit market.
CBN Tightens Monetary Policy to Stabilize the Naira
The CBN increases the Monetary Policy Rate (MPR) by 25 basis points, bringing it to 27.50% from 27.25%. Other key parameters, including the Cash Reserve Ratio (CRR) at 50% and the Liquidity Ratio at 30%, remain unchanged.
CBN Governor Yemi Cardoso emphasizes the bank’s commitment to ensuring currency stability and fostering a supportive environment for economic growth. “The Nigerian Central Bank exists to maintain stability, which is essential for economic planning,” he says, highlighting the bank’s use of regulatory tools to address market misconduct and promote discipline.
Cardoso notes that, despite inflationary pressures and global uncertainties, the naira has maintained relative stability since June 2024, signaling resilience amid challenges.
CBN Introduces Bloomberg BMatch Platform for FX Trading
To enhance transparency in foreign exchange trading, the CBN directs authorized dealers to adopt the Bloomberg BMatch platform by December 2, 2024. This electronic foreign exchange matching system (EFEMS) automates FX transactions, improving governance, price discovery, and operational efficiency.
The CBN explains that the platform reduces volatility and increases market liquidity, offering a more transparent and efficient trading environment.
Trump’s Tariff Plan Shakes Global Currency Markets
Globally, the naira faces pressure following former U.S. President Donald Trump’s announcement of higher tariffs. Trump declares plans to impose a 25% tariff on Canadian and Mexican imports, along with a 10% increase on existing tariffs for Chinese goods.
The U.S. Dollar Index, which measures the dollar’s strength against major currencies, hovers around 106/107 points during Wednesday’s trading. Strong U.S. economic data and a firm Federal Reserve stance strengthen the dollar, creating ripple effects in emerging markets.
Analysts predict the Federal Reserve will begin easing interest rates in December, with gradual cuts throughout 2025. Despite this outlook, inflation concerns and geopolitical tensions continue to impact global currency movements.
Outlook
Stabilisation of the naira is the goal of the CBN’s monetary policies and use of sophisticated trading platforms. Nonetheless, outside variables like world economic developments and US monetary policy continue to have a significant impact on the currency’s performance.
