The Nigerian currency showed strength in the official currency market but remained lukewarm in the black market following the CBN’s interest rate hike.
FMDQ data showed the local currency strengthened to N1,659.44/$ on Tuesday from N1,675.62/$ on Monday.
The naira settled at N1,750/$ on Wednesday morning in the unofficial market in Nigeria’s major cities.
CBN Maintains a Hawkish Stance to Support the Naira
The CBN raised the Monetary Policy Rate to curb soaring inflation and enhance the naira’s stability.
The Monetary Policy Committee (MPC) unanimously increased the MPR by 25 basis points, from 27.25 per cent to 27.50 per cent. The Nigerian apex bank also kept the Cash Reserve Ratio (CRR) at 50 per cent for Deposit Money Banks and 16 per cent for Merchant Banks.
According to CBN chief Yemi Cardoso, the CBN has always prioritized preserving the naira’s stability. He emphasized the importance of creating an environment that is favorable for investment and economic planning.
“The Nigerian Central Bank exists to maintain stability,” he stated. “Stability facilitates economic planning. We make every effort to use all the resources at our disposal, which include several tools such as penalizing individuals who behave poorly, along with a variety of other measures to guarantee stability.”
The CBN governor claimed that the naira has remained stable since June 2024, despite pressure points from both domestic inflationary trends and international economic uncertainties.
Nigeria Unveils FX Trading on Bloomberg BMatch Platform
- The CBN instructed Nigerian deposit money banks to obtain the resources and technology required to integrate with the Bloomberg BMatch system.
- This directive came after the apex bank decided to automate foreign exchange trading to enhance governance, supply, and transparency.
- According to the CBN, all authorized dealers will begin using Bloomberg BMatch as the electronic foreign exchange matching system (EFEMS) for their FX trading operations starting December 2.
- The CBN stated that the platform was transparent and that automated matching trades would improve currency trading’s operational efficiency and integrity.
- The authority anticipates increased price discovery and market efficiency as a result of this process.
Trump’s Tariff Plan Distorts Currency Markets
The US dollar distorted the naira’s dynamics and the global currency market on Tuesday after President-elect Donald Trump announced on social media that his administration would impose a 25 per cent additional tariff on Canadian and Mexican imports, adding 10 per cent to the 60 per cent tariff on Chinese goods that he had already announced during his campaign.
- The US Dollar Index, which compares the US dollar’s strength to a basket of major currencies, hovered around 106/107 index points during Wednesday’s trading session after important economic data was released.
- Traders were looking for clues in the Federal Open Market Committee (FOMC) Meeting Minutes from the November meeting.
- The US Dollar Index has shown a bullish bias, thanks to solid economic data and a less dovish Federal Reserve (Fed) stance. Profit-taking and geopolitical uncertainty have caused recent pullbacks, but the upward trend remains intact. Technical indicators point to possible consolidation as overbought conditions begin to subside.
- UBS predicted that the Fed would likely lower interest rates in December before reducing them more gradually in 2025. The Fed is expected to lower rates once every quarter in 2025, following a 25-basis point cut in December.
- The American central bank is anticipated to reduce rates by 125 basis points by the end of 2025, bringing its target rate down from 3.25 per cent to 3.5 per cent.
- The U.S. economy remains robust, supported by high consumer spending. However, the labor market is experiencing a “softening trend,” and manufacturing is facing pressure from weaker global demand.
Fed officials’ remarks also revealed disagreement among decision-makers regarding the pace of future rate reductions.
Despite some concerns about sticky inflation, the Fed’s November meeting minutes showed that members supported the gradual easing of interest rates.
