The naira could come under renewed depreciation pressure following the Central Bank of Nigeria’s (CBN) decision to cut the Monetary Policy Rate (MPR) by 350 basis points to 23%, according to Financial Derivatives Company Managing Director, Bismarck Rewane.

Speaking on Channels Television, Rewane described the move from 26.5% to 23% as a “jumbo cut,” warning that the sharp reduction could make naira-denominated assets less attractive to investors. He said lower interest rates could reduce returns on savings and investments, potentially encouraging some investors to move funds into alternative assets, including foreign currencies.

Despite the potential pressure on the naira, Rewane said the immediate reaction in the foreign exchange market had been relatively limited. He noted that the naira traded around N1,387 to the dollar before briefly weakening to about N1,390 and later returning to around N1,387 in the parallel market. He added that diaspora inflows could help cushion any decline in foreign portfolio investment, while noting that the naira’s movement would ultimately depend on broader market conditions.

The rate cut could, however, provide relief for the government and businesses by lowering borrowing costs. Rewane said the Federal Government currently spends about N15.8 trillion on debt servicing and could benefit from cheaper domestic borrowing. He also said lower interest rates could improve corporate margins and support equity valuations, with the Nigerian stock market gaining 0.18% following the CBN’s announcement.

Rewane stressed that monetary easing alone would not resolve Nigeria’s economic challenges, calling for stronger fiscal consolidation and reduced leakages. The latest decision brings the CBN’s cumulative rate reduction since September 2024 to 4.25 percentage points, taking the MPR from 27.25% to 23%. While the rate cut could support economic activity and reduce financing costs, Rewane’s warning highlights the balancing act facing policymakers between stimulating growth, protecting savings and maintaining stability in the foreign exchange market.

source: nairametrics