The Nigerian naira got a boost because the U.S. dollar became weaker and the Central Bank of Nigeria (CBN) surprised everyone by raising interest rates. Nigeria’s foreign exchange market is like a big, complicated puzzle.
On Thursday, the naira traded at N1,576 for 1 dollar in the official market. The day before, it was N1,667 for 1 dollar. That means it got better by N91. This information came from the Nigerian Autonomous Foreign Exchange Market (NAFEM).
But in the black market, the naira didn’t do so well. It traded at N1,700 for 1 dollar in many big cities in Nigeria.
Why did this happen? Investors are being careful and waiting to see if the Nigerian government will do things like increase taxes and produce more oil. They want proof before they invest more money.
The boost for the naira came because the CBN raised interest rates by 0.5% on Tuesday, making it 27.25%. Why? Because prices of things are going up a lot and they want to fight inflation. Inflation is when the prices of things you buy every day get higher and higher.
Now, people who were betting that the naira would go down might be worried. They see that the naira isn’t falling as much as they thought. More people want foreign money for things like school fees abroad, vacations, and importing fuel.
Sometimes, the Central Bank of Nigeria has to sell dollars to keep the naira stable. Why? Because the country’s supply of dollars is low. Nigeria makes most of its dollars from selling crude oil, but problems like oil theft and not enough investment in oil make it hard.
Weak U.S. Dollar Index Readings
The U.S. dollar got weaker compared to other major currencies on Thursday. This happened after the Federal Reserve, which is like the central bank of the U.S., decided to be less strict about interest rates.
Economists say the dollar might not get weaker quickly but will be in a stable phase for now. They think in 2025 the dollar might get weaker again because short-term interest rates are going down and people are willing to take more risks with their money.
The Chinese central bank made some changes on Friday, like lowering the reserve requirement ratio (RRR) by 0.5%. They also cut down the seven-day repo rate from 1.7% to 1.5%. This is like them saying, “You can keep less money in reserve and borrow money at a cheaper rate.”
Some mixed news from the U.S. made people less interested in buying dollars. This helped stocks in Europe and the U.S. to go up. Fed Chair Jerome Powell and other Fed leaders talked on Thursday, but only two of them discussed how they handle money policies. One was very strict, and the other supported a big rate drop in September.
According to the CME Group’s Fed Watch Tool, there is a 50% chance the Fed will lower interest rates by 0.5% in November. A day before, it was 60%. They are waiting for the next U.S. Core Personal Consumption Expenditures (PCE) Price Index to come out. This will help them decide what to do with interest rates next. Also, the end of the quarter might make the markets a bit unsettled.