The Nigerian naira strengthened against the US dollar on Tuesday, September 22, after the Central Bank of Nigeria (CBN) cut its benchmark interest rate by 350 basis points to 23 per cent.
The dollar closed at ₦1,327.78 at the Nigerian Foreign Exchange Market (NFEM), compared with ₦1,329.80 in the previous session. In the parallel market, the dollar was trading around ₦1,389, keeping the difference between the two markets at about ₦61 per dollar.
The timing is important because the CBN has just made its biggest rate adjustment in the current monetary policy cycle, while the naira is showing signs of relative stability.
CBN Cuts Interest Rate by 350 Basis Points
At its 307th Monetary Policy Committee meeting on September 21 and 22, the CBN reduced the Monetary Policy Rate from 26.5 per cent to 23 per cent. Governor Olayemi Cardoso described the move as an operational reset designed to improve monetary policy transmission rather than simply a broad shift towards cheaper money.
The decision followed three consecutive months of easing inflation. Headline inflation fell from 15.43 per cent in July to 15.39 per cent in August, while second-quarter GDP growth reached 4.43 per cent. The CBN also pointed to improved foreign exchange conditions and stronger economic activity.
That gives the central bank more room to reduce the cost of money without immediately abandoning its focus on price stability.
Why the Naira Is Holding Up
The ₦1,327.78 dollar to naira rate is notable because the currency has remained relatively stable despite concerns about high fuel prices and external economic pressures.
Reuters reported earlier in September that the naira had been supported by central bank dollar sales and weaker import demand.
The gap between the official NFEM rate and the parallel market has also become much smaller than the wide differences seen during periods of severe FX pressure. On September 22, the difference was about ₦61 per dollar, although rates can vary depending on the dealer, location and transaction size.
This matters because a more stable exchange rate can make it easier for businesses to plan the cost of imported goods, equipment and raw materials.
The Bigger Test Is Cheaper Credit
The immediate naira movement is encouraging for the foreign exchange market, but the bigger economic question is whether the CBN interest rate cut to 23 per cent will eventually reach ordinary businesses and borrowers.
Business groups have already called for lower lending rates following the decision. However, the CBN’s MPR is not the same as the rate every Nigerian pays on a bank loan. Commercial banks still consider their own funding costs, risk levels and operating expenses when pricing credit.
The fixed-income market is also adjusting. Lower policy rates are expected to put pressure on government security yields, which could encourage some investors to move money towards equities and other assets.
What Happens Next?
The naira’s next test will come from the interaction between inflation, dollar supply, fuel prices and interest rates.
Nigeria is still facing pressure from higher petrol prices, with fuel reaching about ₦1,400 per litre in Lagos and Abuja amid higher global oil prices. That could put fresh pressure on inflation even as the CBN begins lowering interest rates.
For now, the combination of a stronger NFEM rate, a relatively narrow official-to-parallel market gap and moderating inflation gives the naira a more stable backdrop.
The question over the coming months will be whether that stability can last while the CBN moves from a highly restrictive interest-rate environment towards cheaper credit and stronger economic activity.
