Impact of CBN's Monetary Policy on Nigeria's Foreign Exchange Pressure.

According to Bismarck Rewane, Chief Executive Officer of Financial Derivatives, the pressure on Nigeria's foreign exchange will lessen as a result of the Central Bank of Nigeria Monetary Policy Committee's modification of the asymmetric corridor around interest rates.

In response to the CBN's interest rate increase of 50 basis points to 26.75 percent on Tuesday, the well-known economist revealed this on Channels Television. He clarified that the main issue is the MPC's modification of the asymmetric corridor surrounding the interest rate to +500/-100 basis points from +100/-300 basis points. He pointed out that this would make borrowing from the CBN to purchase foreign exchange more expensive for banks and discourage them from doing so.

The decision, he continued, will increase Nigeria's inflows from foreign portfolios. 

“The interest rate increase is 50 basis points. The real deal is the Asymmetric corridor adjustment. What this means is that banks have been borrowing from the Central Bank to buy foreign exchange from the Central Bank. Before they were borrowing at 26 percent. As of today, they will be borrowing at almost 32 percent. That difference is almost 5-6 percent. It means the cost of borrowing has gone up astronomically, this means a deterrent to borrowing from the CBN to buy FX. That should reduce pressure on the foreign exchange rate. It is a subtle way of telling banks to stop robbing Peter to pay Paul”, he said.

In an effort to combat core and food inflation, which stood at 34.19 percent and 40.87 percent, respectively, CBN increased interest rates for the fourth time in 2024, to 26.75 percent.