Naira strengthens in official market amid mixed signals in parallel market

The Nigerian naira gained ground in the official market but showed limited movement in the parallel market following the Central Bank of Nigeria’s (CBN) decision to raise its benchmark interest rate.

This comes as the apex bank continues to address currency stability amid domestic inflationary pressures and global economic uncertainties.

Data from FMDQ showed that the naira strengthened in the Investors and Exporters (I&E) window, appreciating to N1,659.44/$ on Tuesday, up from N1,675.62/$ on Monday.

However, in the black market, the naira hovered around N1,750/$ on Wednesday morning, reflecting a subdued response to the recent monetary policy adjustments.

The CBN’s Monetary Policy Committee (MPC) unanimously raised the Monetary Policy Rate (MPR) by 25 basis points, bringing it to 27.50% from 27.25%. Other parameters, including the Cash Reserve Ratio (CRR) for Deposit Money Banks at 50% and for Merchant Banks at 16%, remained unchanged.

CBN Governor Yemi Cardoso emphasized the central bank’s commitment to maintaining the naira’s stability.

“The Nigerian Central Bank exists to maintain stability,” Cardoso stated during a press briefing. “Stability facilitates economic planning, and we are leveraging all available tools to achieve this goal, including penalizing disruptive market behaviors.”

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The CBN anticipates this initiative will improve price discovery and operational integrity in the forex market, contributing to a more efficient and transparent trading environment.

The naira’s movements occur against the backdrop of a stronger U.S. dollar, influenced by global economic developments. The U.S. Dollar Index, which compares the dollar against a basket of currencies, remained elevated at around 106-107 points on Wednesday.

This followed President-elect Donald Trump’s announcement of additional tariffs on Canadian, Mexican, and Chinese imports, further unsettling global trade dynamics.

Economic analysts believe the CBN’s recent measures indicate a strategic focus on bolstering investor confidence while addressing currency volatility.

Dr. Muda Yusuf, a prominent economist, noted, “The increase in the MPR demonstrates the CBN’s intent to curb inflation and attract foreign capital. However, parallel market rates suggest persistent pressure on dollar demand, likely driven by structural gaps in the forex market.”

Similarly, FX strategist Bola Onasanya highlighted the significance of automating forex trading. “The introduction of Bloomberg BMatch is a game-changer for Nigeria’s forex market. By enhancing transparency and efficiency, the CBN is signaling its commitment to long-term market stability.”

While the naira’s appreciation in the official market signals some positive effects of the CBN’s policies, its tepid performance in the parallel market underscores the challenges of demand-supply imbalances.

Analysts expect that successful implementation of automated trading and further policy adjustments could lead to a more harmonized exchange rate regime in the coming months.