… Naira appreciates further in the official market
Nigeria is expected to witness increased portfolio inflows, particularly into the fixed-income market, if the U.S. Federal Reserve proceeds with its plan to cut interest rates, as signalled by Fed Chair Jerome Powell.
Foreign Portfolio Investments (FPIs) have remained the largest source of foreign exchange supply, accounting for about 45 per cent of total inflows. In absolute terms, inflows from offshore investors climbed to USD 1.7 billion in July, compared with USD 1.5 billion recorded in June. The uptick reflects a cautious return of foreign investor confidence, buoyed by robust carry trade opportunities and relatively stable global macroeconomic conditions during the period.
Read also: Positioning Nigeria as Africa’s premier investment destination
According to analysts at FBNQuest, a lower U.S. interest rate would reduce the relative attractiveness of American assets and encourage global investors to seek higher yields in emerging markets such as Nigeria.
They noted that renewed interest from offshore investors could potentially strengthen foreign exchange reserves and support the stability of the naira. However, all indications point to a prolonged monetary tightening stance by the Monetary Policy Committee (MPC), given persistent inflationary pressures and ongoing efforts to stabilise conditions in the exchange rate market.
Data from the Central Bank of Nigeria (CBN) showed that the naira appreciated further against the dollar in the official foreign exchange (FX) market, gaining N1.60 to close at N1,535.47 per dollar on Thursday, compared to N1,537.07 on the previous day at the Nigerian Foreign Exchange Market (NFEM). At the same time, Nigeria’s external reserves rose to $41.22 billion as of August 26, 2025, crossing the $41 billion mark for the first time in more than four years.
The U.S. Federal Reserve is preparing to resume interest rate cuts, Powell signalled, even as he warned that Donald Trump’s tariffs and immigration crackdown had unsettled the global economy and put pressure on the American labour market.
“With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell said in a closely watched speech at the Jackson Hole symposium in Wyoming on Friday. He highlighted a “challenging” dilemma in which Trump’s tariffs risk pushing up inflation while his immigration policies could weaken the U.S. labour force.
Powell had for months resisted Trump’s demands to cut rates and ignored repeated calls for his resignation. But as the president steps up his extraordinary attacks on the Fed’s independence, Powell suggested that central bank policymakers are now weighing a rate reduction.
Back home, Nigeria’s inflation rate eased further to 21.88 per cent in July, compared with 22.22 per cent recorded in June 2025, according to data from the National Bureau of Statistics (NBS). Most analysts now anticipate a rate cut at the upcoming MPC meeting. A report by United Capital noted, “The MPC of the CBN may consider an interest rate cut at its September 2025 meeting.” The firm explained that such a move could lower borrowing costs for households and businesses, trigger rallies in the equity market, and create new opportunities for fixed-income investors, depending on their portfolio strategies. It added that lower rates could also encourage more companies to raise capital through the domestic market.
Read also: Fintech dominates Africa’s private equity inflows amid investment slowdown
However, Norrenberger, a Nigerian integrated financial services group, cautioned in its economic outlook that expected monetary easing in the second half of the year could dampen FPI appetite and weigh on foreign exchange inflows. The firm also noted that seasonal factors, including increased summer travel and tuition-related outflows for foreign education, were expected to elevate FX demand and add pressure to the naira.
At its July 2025 meeting, the MPC opted to sustain its tight monetary stance by leaving all key policy parameters unchanged. The Monetary Policy Rate (MPR) was maintained at 27.5 per cent, with the asymmetric corridor around the MPR retained at +500/-100 basis points. The Cash Reserve Ratio (CRR) was kept at per cent for deposit money banks and 100 per cent for merchant banks, while the liquidity ratio stayed at 30 per cent. These decisions reflected the MPC’s cautious posture, aimed at consolidating the recent disinflation trend while keeping persistent price pressures in check amid elevated risks to consumer prices.
