CBN To Respond as US Government Decision Gives Hope to Naira Recovery
- The US Federal Reserve's decision to lower interest rates is set to weakened the United States Dollar
- The decision has provided an opportunity for the Nigerian currency to strengthen in the foreign exchange market
- Economist says that the US federal reserve decision will also help attract more investment into Nigeria
Legit.ng journalist Dave Ibemere has over a decade of business journalism experience with in-depth knowledge of the Nigerian economy, stocks, and general market trends.
Nigerian currency, the naira has been provided lifeline by the US Federal Reserve after cut in its key lending rate by 0.5%.
The decision which was taken on Wednesday, September 17 is the first reduction for more than four years.
Source: Getty Images
What does the US Fed reserve cut means?
The interest rate cut, announced by Federal Reserve head Jerome Powell means lower borrowing cost
By lowering borrowing costs, Powell said will help to boost domestic spending and investment in skils development.
However, the other side of the decision is that the rate cut will weaken the US Dollar on global foreign exchange markets.
Good news for naira
For Nigeria, which has been battling currency depreciation and inflation, the US Fed's decision offers another hope of recovery.
Since the start of 2024, the naira has lost over 100% of its value against the dollar, falling to as low N1,656 in the official market.
However on Thursday, September 19 naira closed against the dollar at N1,544.02 at NAFEM window a sign of good things to come.
The Central Bank of Nigeria Monetary Policy Meeting(MPC) will sit on Monday September 23 and Tuesday September 24.
The decision taken will likely affect how much gain Nigeria can maximize from the US Fed interest rate cut, because a weaker dollar could lower the cost of imports and reduce pressure on Nigeria's foreign reserves.
Chinedu Okafor, a Lagos-based economist expressed optimism of brighter days ahead for naira.
He said:
"The Fed's decision to cut interest rates is good news for Nigeria, as it will likely weaken the dollar due to lower borrowing costs.
"With cheaper dollar loans and relatively high interest rates in Nigeria, we can expect an influx of investors into the Nigerian money and capital markets, where they can benefit from the attractive returns on offer."
"With more foreign cash coming in, it is an opportunity for the naira to strengthen its position and fall below N1,600 to a dollar.
"A weaker dollar is also good news, as it will help lower the cost of imported goods, which could ease inflationary pressures, given that Nigeria is largely an import-dependent country."
Suleiman Abdullahi offers a different perspective:
He said:
"In my view, the Fed's decision provides only short-term relief and won't sustain foreign portfolio investment (FPI) inflows in the long run.
"A 0.5% rate cut isn’t a strong enough incentive to attract significant FPI to Nigeria.
"Additionally, we must consider the sustainability of Nigeria's high interest rates. As inflation continues to ease, the CBN will likely have to lower rates as well just like the US Fed.
"Naira and general economy performance is largely dependent on the government commitment to sustained economic development through prudent use of public funds."
New platforms identified as threats to naira
Earlier, Legit.ng reported that Nigerians identified the emergence of two cryptocurrency platforms as the reason for the recent fall of the naira.
The earlier decline of the naira was attributed to alleged market manipulation by Binance.
Nigerians have blamed the latest depreciation on new crypto exchange platforms, namely BYBIT and BITGET.
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Source: Legit.ng
