Rewane Warns of Naira Depreciation After CBN Rate Cut

Bismarck Rewane, Managing Director of Financial Derivatives Company, indicated that the naira may experience depreciation pressure after the Central Bank of Nigeria (CBN) reduced the Monetary Policy Rate (MPR) by 350 basis points to 23%. This reduction from 26.5% is termed a “jumbo cut” and could diminish the attractiveness of naira-denominated assets, affecting savings and investment flows.

Rewane noted that the immediate reaction in the foreign exchange market was muted, with the naira trading around N1,387 to the dollar, briefly weakening to N1,390 before returning to N1,387. He explained that lower interest rates could pressure the naira as returns on local assets decline, although diaspora inflows might offset weaker foreign portfolio investment.

Rewane also mentioned that the reduction could lower the Federal Government’s borrowing costs, which currently amount to about N15.8 trillion for debt servicing, and improve corporate margins. He emphasized that the effectiveness of monetary easing depends on the government’s fiscal management capabilities.