As dollar shortage in Nigeria persists amid falling oil prices due to the global demand drop in the wake of the coronavirus pandemic, the central bank weakened the naira on the official window to N390 against the dollar.

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The naira on Wednesday regained strength in the parallel market after the Central Bank of Nigeria (CBN) cut its benchmark interest rate, known as the Monetary Policy Rate (MPR), by 50 basis points.

Data obtained from foreign exchange street traders showed that the naira appreciated by N10, with the dollar quoted at N1,390 on Wednesday morning. This represents a 0.7 percent gain compared to N1,400 quoted on Tuesday in the black market.

The rebound in the parallel market follows the local currency’s recorded losses for the past two trading days in that segment and for five consecutive trading sessions in the official window. The recent pressure had been attributed largely to a decline in weekly foreign exchange inflows, which constrained liquidity across the market.

At the official foreign exchange market, the currency weakened further on Tuesday. It depreciated by N6.13 to close at N1,355.37 per dollar, representing a 0.5 percent loss compared to N1,349.24 quoted on Monday at the Nigerian Foreign Exchange Market (NFEM) window.

Olayemi Cardoso, governor of the CBN, said members of the Monetary Policy Committee (MPC) opted for a measured reduction in interest rates to 26.5 percent. According to him, the decision followed nearly a year of cooling inflation, stronger foreign exchange buffers and improving macroeconomic conditions, which collectively created room for cautious policy easing.

Market analysts say the rate cut could help reinforce investor confidence if supported by sustained FX liquidity and stable reserves. Lukman Otunuga, senior market analyst at FXTM, said the CBN’s decision is likely to have a stabilising and potentially positive impact on the naira, which has gained about 6 percent year-to-date.

“Growing confidence over the Nigerian economy in the face of lower rates, improved FX liquidity, and rising FX reserves, which recently reached a 13-year high, should provide a solid foundation for the naira,” Otunuga said. “Even with the 50-basis-point rate cut, real rates remain high when adjusted for inflation. Most importantly, Nigeria’s benchmark interest rate is still one of the highest in Africa, which may continue to attract foreign portfolio investors and lend further support to the naira.”

Adebowale Funmi, head of Research at Parthian Securities, noted that for the fixed income market, the rate cut is expected to have only a modest impact as investors had largely priced in the possibility of monetary easing.

She added that developments in the global oil market remain a key risk to watch. According to her, a bearish oil price environment could widen Nigeria’s fiscal deficit and increase government borrowing needs. “This suggests that interest rates may still be maintained at levels sufficiently attractive to investors to support the government’s funding requirements,” she said.

While the naira’s recovery in the black market signals short-term optimism, analysts caution that sustained stability will depend on consistent FX inflows, prudent monetary management and developments in the external sector, particularly oil receipts, which remain a major source of foreign exchange earnings for Africa’s largest economy. (Business Day)

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