The Central Bank of Nigeria (CBN) is expected to cut rates by half a percentage point at the end of its Monetary Policy Committee (MPC) meeting on Tuesday.
Analysts say a stronger naira and a gradual cooling in inflation could grant the central bank scope to lower borrowing rates for the first time in five years at its meeting on Sept. 23 after leaving them on hold at 27.5% since last year.
Nigeria’s annual inflation decelerated for the fifth straight month in August.
The consumer price index rose 20.1% from 21.8% in July, according to data released last week by the National Bureau of Statistics.
After lifting the key interest by 16 percentage points since May 2022, the Central Bank of Nigeria’s monetary policy committee has kept interest rates at 27.5% at its past three meetings to gain clarity on the direction of inflation.
The MPC hasn’t cut rates since the height of the coronavirus pandemic in 2020. It will deliver its next rate decision on Sept. 22.
The CBN will be mindful that Nigeria’s naira has hit a near seven-month high boosted by stronger oil export earnings and foreign demand for the high yields offered by the local debt market ahead of any possible interest rate cut.
The naira closed at 1,495.25 per dollar last week, breaking below the psychological level of 1,500 for the first time since February.
Africa’s largest oil producer had a current-account surplus of $4.98 billion in the six months through June, according to data from the nation’s statistics office. An indication that the country earns more money from abroad than it spends on imports, it has been positive since the last quarter of 2022.
The surplus has been helped by increased crude sales and other oil shipments, which accounted for about 87% of its export earnings in the first half of the year, as well as healthy foreign inflows into high-yield debt auctioned by the central bank.
These factors have lifted gross foreign exchange reserves to $41.9 billion, the highest levels since 2021.
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