Naira appreciates after CBN’s decision to hold interest rate

The naira appreciated by 0.5 percent against the US dollar on Tuesday, buoyed by the Central Bank of Nigeria’s (CBN) decision to maintain the Monetary Policy Rate (MPR) at 27.5 percent.

According to data from the Nigerian Foreign Exchange Market (NFEM), the local currency closed at N1,590.45 per dollar, gaining N8.23 from Monday’s rate of N1,598.68, as reported by BUSINESSDay.

Despite the positive movement in the official market, the naira remained stable in the parallel market, where traders quoted the dollar at N1,620. A street trader commented, “There hasn’t been much movement on the street rate, but there’s growing optimism with what the central bank is doing.”

Market activity at the NFEM showed significant momentum, with foreign exchange inflows surging to $914 million last week, a 47.66 percent increase from $619 million the week before, according to a report by Coronation Merchant Bank’s research team. A breakdown of the inflows revealed that the CBN contributed 25.41 percent, Foreign Portfolio Investors accounted for 12.53 percent, non-bank corporates brought in 28.85 percent, exporters contributed 20.79 percent, and other sources made up the remaining 12.42 percent.

In addition to the improved inflows, Nigeria’s gross foreign reserves rose by 0.55 percent during the week, reaching $38.34 billion as of May 16, 2025. The naira also saw a modest gain of 0.02 percent against the Chinese Yuan, closing at N221.77 to one Yuan.

Addressing journalists after the two-day Monetary Policy Committee (MPC) meeting, CBN Governor Olayemi Cardoso said all key policy rates were left unchanged. He explained that the decision was driven by the need to maintain macroeconomic stability, noting that recent reforms are beginning to produce positive outcomes.

“Volatility in the foreign exchange market has declined significantly, falling below 0.5 percent as our monetary and fiscal reforms begin to stabilise the macroeconomic environment,” Cardoso said. He pointed to the reduction in exchange rate volatility as evidence of rising confidence in the Nigerian economy, adding that volatility has reduced from over 4 percent a year ago to less than 0.5 percent now. “That’s an indication of stability,” he said.

Cardoso also described the naira as “a relatively more competitive currency.”

In the previous week, the naira had gained 0.46 percent in the official market, closing at N1,598.72 per dollar after three consecutive weeks of decline. Forward market rates also reflected expectations of future movement, with the one-month forward rate at N1,636.05, the three-month rate at N1,700.59, the six-month rate at N1,793.67, and the one-year forward rate at N1,972.22 per dollar.

However, in the parallel market, the naira edged down by 0.12 percent on Friday, closing at N1,627 per dollar, according to the report.