Naira Strengthens to N1,497/$ as markets eye CBN’s Interest rate decision

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The Nigerian naira gained about 1.2% against the U.S. dollar over the past week, appreciating from N1,519/$ to N1,497/$, just as the Central Bank of Nigeria (CBN) convenes to decide on the nation’s benchmark interest rate.

The sharpest daily movement occurred on September 19, when the USD/NGN exchange rate dropped by 0.66%.

The CBN’s Monetary Policy Committee (MPC) commenced its two-day meeting on Monday, September 22, and is set to announce its decision on September 23. Market watchers expect that the bank may ease rates, pointing to the naira’s recent strength and falling inflation as justification for a more relaxed monetary stance.

Headline inflation slowed for the fifth consecutive month, reaching 20.1% year-on-year in August. Analysts attribute this to naira stability and a rise in foreign exchange reserves. At present, the USD/NGN is testing key resistance levels between N1,519/$ and N1,524/$, while support has been seen at N1,476/$–N1,485/$, levels last noted in January and February 2025.

The naira has also appreciated in the parallel market, trading between N1,515 and N1,517/$. Factors boosting the local currency include improved forex reserves and increased dollar inflows from oil and gas exports. Nigeria’s external reserves have risen as oil output grows, natural gas revenues expand, and crude theft falls to near decade-lows.

Analysts also credit the turnaround to CBN’s reforms and a decline in speculative trading. Market forecasts suggest the MPC may reduce its benchmark rate from 27% to 25% and adopt a narrower corridor around the policy rate to better regulate interbank liquidity.

Investor sentiment is further supported by global developments. Expectations of a potential rate cut by the U.S. Federal Reserve, coupled with tariff concerns, have pushed the U.S. Dollar Index (DXY) down by 10% this year. Weaker demand for the greenback has eased pressure on emerging market currencies, including the naira.

Locally, stability has been reinforced by CBN’s forex unification, tighter monetary controls, and declining speculation linked to cryptocurrencies. Meanwhile, trade ties with China have expanded, with more Chinese businesses now accepting naira under a $2 billion swap arrangement. This pact helps reduce demand for the dollar in the $22 billion bilateral trade, most of which comprises Nigerian imports from China, potentially easing forex pressure by $20 billion annually.

Additionally, lower appetite for luxury imports, combined with stronger export-promotion efforts, has moderated forex demand.

Globally, the DXY edged higher to around 97.80 at publication as traders awaited speeches from Federal Reserve officials for further direction on U.S. monetary policy.

The Fed recently lowered its benchmark rate by 25 basis points to a new 4% target range—the first cut of the year. During his press briefing, Fed Chair Jerome Powell described the move as a “risk management cut,” designed to respond to a weakening labour market even as inflation remains elevated.

Fed Governor Stephen Miran reinforced this sentiment, stating that the rate cut reflected cautious steps to stabilise the economy without undermining inflation control.

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