Naira strengthens to N1,552/€ as CBN tight policy supports FX stability
The naira appreciated against the euro at the official foreign exchange market, strengthening to N1,552/€ in the mid-week trading session from N1,563/€ recorded last week, as the Central Bank of Nigeria’s (CBN) tight monetary policy continued to support exchange rate stability.
Latest CBN data showed the local currency has remained relatively stable against the European currency after retreating from the N1,684/€ level reached in early January. The euro has since traded largely within the N1,550/€ to N1,575/€ band.
The relative stability reflects the impact of the CBN’s sustained monetary tightening, with the apex bank maintaining a restrictive policy stance to curb inflation and absorb excess naira liquidity that previously fuelled pressure on the foreign exchange market.
Analysts said the combination of elevated interest rates, tighter liquidity conditions, the unification of the official foreign exchange market and the settlement of outstanding FX obligations has strengthened confidence and reduced speculative demand for foreign currency.
The improved stability has also eased panic buying in the parallel market, while steady inflows from crude oil exports and diaspora remittances have continued to support foreign exchange supply.
Despite the gains, analysts noted that persistent inflation continues to erode consumers’ purchasing power and remains a key factor limiting stronger appreciation of the naira.
In the international market, the euro traded around $1.14 against the United States dollar on Wednesday, struggling to extend gains amid cautious investor sentiment ahead of the US Federal Reserve’s interest rate decision.
Market participants remain focused on the Fed’s policy outlook, with money markets pricing in expectations of further monetary tightening later in the year.
Geopolitical tensions also remained elevated following renewed hostilities involving Iran-backed Houthi rebels in the Red Sea and reports of continued US military operations targeting Iran, raising concerns over global energy supplies and investor risk appetite.
Meanwhile, trade tensions intensified after reports that the United States plans to introduce fresh tariffs of between 10 and 12.5 per cent on selected imports, including products from the European Union.
The European Central Bank (ECB) maintained its key interest rates after its June rate increase, leaving the deposit facility at 2.25 per cent, the main refinancing rate at 2.40 per cent and the marginal lending facility at 2.65 per cent.
The ECB reiterated its commitment to returning inflation to its medium-term 2 per cent target, while warning that uncertainty persists, particularly over energy prices.
Investors are now awaiting Germany’s and the Eurozone’s July Harmonised Index of Consumer Prices (HICP), expected later this week, with forecasts pointing to a rise in German headline inflation to 2.8 per cent from 2.4 per cent in June, potentially strengthening expectations of further ECB policy tightening.
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