Following the CBN’s interest rate hike, the Nigerian naira was strong in the official currency market but lukewarm in the illicit market.
According to FMDQ data, the local currency appreciated from N1,675.62/$ on Monday to N1,659.44/$ on Tuesday.
On Wednesday morning, the unofficial market in Nigeria’s biggest cities saw the naira settle at N1,750/$.
CBN Keeps a Hawkish Attitude to Help the Naira
The CBN increased the Monetary Policy Rate to reduce skyrocketing inflation and improve the naira’s stability.
The MPR was unanimously raised by the Monetary Policy Committee (MPC) from 27.25 percent to 27.50 percent, a 25 basis point rise. The Nigerian central bank also maintained the Cash Reserve Ratio (CRR) at 16 percent for merchant banks and 50 percent for deposit money banks.
The stability of the naira has always been a top priority for the CBN, according to CBN chief Yemi Cardoso. He underlined the importance of establishing an atmosphere conducive to economic planning and investment.
“The Nigerian Central Bank exists to maintain stability,” he said. “Stability allows for better economic planning. We make every effort to employ all of our resources, which include many techniques such as penalising individuals who behave improperly, as well as a range of other efforts to ensure stability.”
Despite pressure from both internal inflationary tendencies and global economic uncertainty, the CBN governor asserted that the naira has stayed stable since June 2024.
Nigeria Launches FX Trading on Bloomberg Match Platform
- The CBN directed Nigerian deposit money institutions to acquire the necessary technology and resources to integrate with the Bloomberg BMatch system.
- This directive was issued following the top bank’s decision to automate foreign exchange trading to improve supply, governance, and transparency.
- The CBN states that as of December 2, all authorized dealers would use Bloomberg BMatch as their electronic foreign exchange matching system (EFEMS) for FX trading activities.
- According to the CBN, automated matching trades would increase the operational integrity and efficiency of currency trading, and the platform was transparent.
- The authority expects this method to increase market efficiency and price discovery.
Trump’s Tariff Plan Disrupts Currency Markets
Following President-elect Donald Trump’s announcement on social media that his administration would impose a 25% additional tariff on Canadian and Mexican imports, adding 10% to the 60% tariff on Chinese goods he had previously announced during his campaign, the US dollar distorted the dynamics of the naira and the global currency market on Tuesday.
- Following the release of significant economic data, the US Dollar Index, which measures the strength of the US dollar relative to a basket of major currencies, remained stable at 106/107 index points during Wednesday’s trading session.
- The Federal Open Market Committee (FOMC) meeting minutes from the November meeting were the source of hints that traders were searching for.
- The US Dollar Index has displayed a bullish bias because of strong economic statistics and a less dovish Federal Reserve (Fed) posture. Although there have been recent pullbacks due to profit-taking and geopolitical anxiety, the rising trend remains. As overbought conditions ease, technical indications suggest that consolidation may be imminent.
- According to UBS, the Fed is expected to cut interest rates in December and more gradually in 2025. After cutting rates by 25 basis points in December, the Fed is anticipated to do so once every quarter in 2025.
- The American central bank is expected to lower rates by 125 basis points by the end of 2025, lowering its target rate from 3.25 percent to 3.5 percent.
- High consumer spending is keeping the U.S. economy strong. However, there is a “softening trend” in the labor market, and the industry is under pressure from dwindling worldwide demand.
The comments made by Fed officials also showed that decision-makers were at odds over how quickly rates would be lowered in the future.
The Fed’s November meeting minutes revealed that members favoured the gradual reduction of interest rates, despite some worries about sticky inflation.
