U.S. tariffs add new dimension to Nigeria's FX pressures

Nigeria's foreign exchange market is facing new challenges as U.S. tariffs add pressure, despite recent interventions by the Central Bank. Bankole Odusanya, Chief Dealer, Treasury at Polaris Bank, discussed the evolving landscape in a recent interview with CNBC Africa. Odusanya highlighted that the market has experienced increased volatility due to the tariff pressures from the U.S. and the response from global markets. Foreign portfolio investors (FPIs) have been selling off subsidiary assets like Nigerian and other Euro bonds, opting for the safety of the dollar. This flight to safety has led to a surge in demand for dollars, impacting interbank rates. While the alternative market remains stable at 1,580, the interbank rates fluctuated between 1,680 and 1,625, eventually settling at 1,625. Odusanya noted that supply influx has contributed to the slight strengthening of the Naira, with projections suggesting a potential settlement at 1,600. Despite the challenges, maintaining investors' confidence is crucial for the Central Bank. Odusanya emphasized the importance of liquidity over price stability, praising the CBN's adherence to market dynamics. He commended the CBN's market participation and intervention, ensuring a free and open market for foreign investors. With uncertainties looming due to the ongoing trade war, Odusanya urged proactive measures. He suggested that economic councils and ministries review budget benchmarks and consider local currency borrowing to address deficits. Additionally, special bond issuances like Sukuk bonds could provide alternative funding sources. Odusanya underscored the need to adjust issuance rates to attract investors amid the current risk-off sentiment. He advised the authorities to release updated issuance calendars with competitive rates to incentivize foreign investment. The interview concluded with discussions on potential rate adjustments for securities to maintain investor interest. Odusanya acknowledged the trade-offs involved in increasing rates but emphasized the necessity to prevent heavy Naira exits. Overall, the Nigerian FX market faces a challenging yet dynamic landscape, requiring adaptability and strategic planning to navigate the current uncertainties.