Naira Stability Expected As US Releases Inflation Data

Naira Volatility Declines Amid Inflation Concerns

The naira, which has experienced significant fluctuations in recent months, is expected to regain stability in the near term due to continued interventions by the Central Bank of Nigeria (CBN). As the global focus turns to inflation data from the United States, experts believe the naira’s recent volatility may ease.

On Wednesday, the CBN will auction Treasury bills worth N81.90 billion to stabilise the financial market. This intervention comes amid concerns over inflation and fluctuating exchange rates.

“We expect the CBN’s actions to reduce naira volatility,” said an analyst from FBNQuest Capital. “The recently enacted tax relief measures, combined with increased oil production, will provide much-needed support to the naira.”

Inflation’s Impact on the Nigerian Economy

Inflation is one of the central concerns affecting Nigeria’s economy. Rising inflation rates have caused price increases across various sectors, particularly transportation and food, which have affected consumers.

The National Bureau of Statistics (NBS) will release its report on air transportation for the first half of 2024. The report highlights that the average fare for domestic flights rose by 56.56% in August 2024, driven largely by inflationary pressures and fuel costs.

“As inflation rises, consumers face higher costs for everyday goods and services,” said a spokesperson for the NBS. “The significant increase in airfares is just one example of how inflation is affecting daily life in Nigeria.”

The US Bureau of Labor Statistics is also set to release inflation data for September this week, which could influence global markets. The US inflation rate dropped to 2.5% in August, down from 2.9% in July. Lower inflation in the US could have implications for emerging markets like Nigeria.

Treasury Bills Auction to Tackle Inflation

The CBN’s auction of N81.90 billion worth of Treasury bills is part of its strategy to manage inflation and stabilise the naira. The auction includes N28.15 billion for a 91-day tenor, N22.67 billion for a 182-day tenor, and N30.77 billion for a 364-day tenor.

At the last auction, the CBN sold N227.45 billion, with interest rates for Treasury bills increasing. The stop rate for the one-year Treasury bill jumped to 20%, reflecting concerns over inflation and rising borrowing costs.

“The increase in Treasury bill rates is a response to inflation,” said a financial expert. “Higher rates help attract investment in government securities but also reflect the underlying economic challenges, including inflation.”

CBN’s Efforts to Stabilise the Naira

The CBN has been actively intervening in the foreign exchange market to reduce naira volatility. Last week, the CBN sold USD 20,000 to Bureau De Change (BDC) operators at NGN1,590/USD, allowing for a small profit margin. This intervention led to a surge in forex trading, with daily turnover reaching USD 575.7 million on September 26.

The naira’s recent performance has been its strongest since June, closing at NGN1,505/USD in the official window. The naira also gained in the parallel market, closing at NGN1,665 per dollar, compared to NGN1,680 the previous day.

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“The CBN’s intervention in the forex market is necessary to control inflation and stabilise the naira,” said a market analyst. “By selling dollars to BDC operators, the CBN is helping to reduce pressure on the naira, which has suffered from inflation and reduced oil revenues.”

Global Inflation Trends and Nigeria’s Outlook

Inflation remains a key factor in the global economy, and Nigeria is not immune to its effects. The US inflation data due this week could provide further insights into how global inflation trends might impact Nigeria.

US Federal Reserve Chair Jerome Powell recently hinted at further interest rate cuts to control inflation. In September, the Federal Reserve cut its target rate by half a percentage point, bringing the rate to 4.75%–5%. These moves are aimed at curbing inflation while supporting economic growth.

Economists predict that inflation in the US could reach the Federal Reserve’s target of 2% by early next year. This could have positive ripple effects for emerging markets like Nigeria, where inflation has been a persistent challenge.

“Nigeria’s inflationary pressures are largely influenced by global factors, including oil prices and the strength of the US dollar,” explained a financial expert. “As global inflation slows, it may provide some relief for the Nigerian economy.”

Inflation and Future Prospects

Inflation continues to shape Nigeria’s economic landscape, driving up costs for consumers and affecting the stability of the naira. However, the CBN’s interventions, including the auctioning of Treasury bills and forex market involvement, offer hope for reduced volatility in the near term.

As global inflation trends unfold, particularly with the release of US inflation data, Nigeria will need to remain vigilant in managing its own inflationary pressures. For now, the central bank’s actions are providing a temporary buffer against inflation’s impact on the naira.