Expert advocates for exchange rate stability over interest rate adjustments

Samson Esemuede, Chief Investment Officer at Zrosk Investment Management Ltd, has urged Nigerian policymakers to prioritize stabilizing the exchange rate over adjusting interest rates.

He made this assertion during Episode 8 of Nairametrics TV’s flagship show, Drinks and Mics, co-hosted by Ugo Obi-Chukwu, CEO of Nairametrics, and Arnold Dublin Green of Cordos Capital.

Esemuede underscored the significance of foreign exchange (FX) stability in driving economic growth, arguing that it has a more profound impact on businesses and output creation than interest rate adjustments.

“Interest rate is a form of price. Exchange rate is a form of price. Now, as a policymaker, you have a choice as to which price you want to adjust or focus on. Within the context of Nigeria and the impact of what it means for the people who are creating output, FX is so much more important than interest rate,” Esemuede stated.

His remarks come in the wake of the latest Monetary Policy Committee (MPC) meeting of the Central Bank of Nigeria (CBN), where the benchmark Monetary Policy Rate (MPR) was retained at 27.50%. Despite this decision, Esemuede insisted that stabilizing the exchange rate should take precedence.

“For me, the priority is let’s have exchange rate stability,” he emphasized. He further advocated for an improvement in Nigeria’s non-oil export revenues as a crucial step in addressing the country’s foreign exchange challenges.

Arnold Dublin Green, co-host and a representative from Cordos Capital, also contributed to the discussion, highlighting that recent fluctuation in the naira’s value may not be solely attributed to CBN interventions.

“It might not only be a CBN intervention [that stabilized the naira], it might be a global play on the naira,” Green noted, suggesting that broader market forces could be influencing Nigeria’s currency.

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His comments align with the perspective of CBN Governor Olayemi Cardoso, who, during the MPC announcement, expressed optimism about recent macroeconomic developments and their potential impact on price stability.

“At this meeting, the Monetary Policy Committee noted with satisfaction, recent macroeconomic developments which are expected to positively impact the price dynamics in the near to medium term,” Cardoso stated.

Cardoso further emphasized that the stability in the FX market has contributed to an appreciation of the naira and a moderation in the price of Premium Motor Spirit (PMS). However, he acknowledged that inflationary pressures remain a challenge, particularly in the food sector.

“Members, however, were not oblivious of the persisting inflationary pressures, driven largely by food prices. The Committee noted the recent rebasing of the commodity price index (CPI) by the National Bureau of Statistics (NBS), which reviewed the weights of items to reflect current consumption,” he added.

The NBS recently revised its methodology for calculating inflation, resulting in a significant drop in the official inflation rate. Under the previous system, inflation stood at 34.80% in December 2024. However, under the new calculation method, the latest report indicates urban inflation at 26.09% and rural inflation at 22.15%.

With these developments, economic analysts continue to monitor the effectiveness of Nigeria’s monetary policies, as the government and CBN navigate the delicate balance between exchange rate stability, interest rates, and inflation control.