Naira gains on increased CBN inflows,  MPC expected to tighten rates

The Nigerian naira saw significant gains against major currencies, buoyed by heightened inflows from the Central Bank of Nigeria (CBN), marking its strongest performance since March.

The CBN, aiming to bolster the naira and combat near three-decade high inflation, is poised for a final interest rate hike.

According to data from FMDQ, the naira strengthened by almost N100 against the dollar, reaching N1,500.32 on Monday, up by 640 basis points compared to Friday’s N1,596.92. In the parallel market, it closed at N1,570 per dollar, a marginal increase from N1,580 last Friday.

Last week, the CBN injected approximately $106.5 million into the forex market through registered dealers to stabilize the foreign exchange situation, attributed to increased demand from businesses and seasonal factors.

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The upcoming meeting of Nigeria’s Monetary Policy Committee (MPC) is anticipated to conclude with a modest rate hike due to persistent high inflation. The naira’s strong performance suggests resistance around the N1,600/$ mark in the parallel market.

Since May 2024, inflation has risen to 34.19%, prompting expectations of further tightening measures by the MPC. Despite previous rate hikes aimed at reducing inflation and boosting foreign portfolio investments, inflationary pressures remain unchecked.

Economists, including Andrew Matheny from Goldman Sachs, advocate for more decisive measures from the CBN to curb inflation and restore investor confidence, emphasizing that incremental rate hikes may not suffice amid ongoing economic challenges.

The prolonged depreciation of the naira, coupled with continuous inflationary trends, has exacerbated poverty levels in Nigeria, with significant implications for household purchasing power and overall economic stability.