MARKET NEWS

The Central Bank of Nigeria (CBN) is expected to begin a gradual easing of its Monetary Policy Rate (MPR) at its next Monetary Policy Committee (MPC) meeting in September, following a continued slowdown in inflation.

Nigeria’s inflation rate eased further to 21.88 percent in July, down from 22.22 percent in June 2025, according to the National Bureau of Statistics (NBS).

Most analysts are anticipating a rate cut at the upcoming meeting. A report by United Capital stated, “The MPC of the CBN may consider an interest rate cut at its September 2025 meeting.” The report noted that such a move could reduce borrowing costs for consumers, spur rallies in the equity market, and create opportunities for fixed-income investors, depending on their strategies. It could also encourage more companies to raise funds through the capital market.

However, the anticipated policy easing may have implications for foreign exchange (FX) inflows and the naira’s stability. In its economic outlook, Norrenberger, a Nigerian integrated financial services group, highlighted that expected monetary easing in the second half of the year could dampen foreign portfolio investor (FPI) appetite, which would weigh on FX inflows. The report said seasonal factors such as increased summer travel and payments for foreign education are also expected to elevate FX demand, further pressuring the naira.

On Tuesday, the naira depreciated slightly by 0.08 percent as the dollar was quoted at N1,534.93, down from N1,533.67 on Monday at the Nigerian Foreign Exchange Market (NFEM), according to CBN data. In the parallel market, the currency held steady at N1,545 per dollar.

While FX inflows into Nigeria have improved in recent months suppored by renewed FPI, steady diaspora remittances, and a relatively favorable trade balance, the sustainability of these inflows remains uncertain as the country heads into the second half of 2025, analysts at Norrenberger said.

According to FBNQuest, to manage liquidity and stabilise the financial system, the CBN significantly ramped up its open market operations (OMO) in 2024. Data from the CBN shows total OMO bill sales reached N13.5 trillion in 2024, a massive increase from N723 billion in 2023. At a single auction on November 11, 2024, the CBN sold over N1.4 trillion in 365-day OMO paper, nearly double the total sales made in all of 2023.

A key reason for this aggressive OMO issuance was to attract foreign portfolio inflows and boost FX liquidity. Elevated yields created favorable conditions for carry trades, with the 362-day OMO yield peaking at 24.4 percent in September 2024, well above comparable U.S. rates.