Naira Rebounds in Parallel Market Following Central Bank Policy Adjustment
The Nigerian naira experienced a notable recovery in the parallel foreign exchange market on Wednesday, February 25, 2026, following the Central Bank of Nigeria's decision to lower its benchmark interest rate. This monetary policy shift has generated significant attention within financial circles and among market analysts.
Exchange Rate Movements Across Different Markets
According to data collected from currency dealers operating in the parallel market, the naira strengthened by N10 against the United States dollar. The greenback was quoted at N1,390 in the black market, representing an improvement from Tuesday's rate of N1,400. This movement translates to a 0.7 percent gain for the Nigerian currency in the unofficial trading space.
However, this parallel market rebound contrasted with developments in the official foreign exchange window. The Nigerian Foreign Exchange Market recorded a different trajectory, with the naira weakening to N1,355.37 per dollar on Tuesday. This represented a decline of N6.13 or 0.5 percent from Monday's closing rate of N1,349.24, according to BusinessDay reports.
Central Bank's Monetary Policy Decision
The Central Bank Governor, Olayemi Cardoso, explained that the Monetary Policy Committee's decision to reduce the Monetary Policy Rate to 26.5 percent followed nearly a year of easing inflation trends. Additional factors influencing this policy adjustment included stronger foreign exchange reserves and improving macroeconomic conditions, which collectively created space for what the governor described as cautious policy relaxation.
This 50 basis point reduction represents a significant shift in the Central Bank's approach to monetary management, particularly after an extended period of maintaining higher interest rates to combat inflationary pressures.
Analyst Perspectives on Policy Implications
Financial market experts have provided diverse insights regarding the potential impacts of this monetary policy adjustment. Lukman Otunuga, senior market analyst at FXTM, suggested that the rate cut could have a stabilizing and potentially positive effect on the naira, which has already gained approximately 6 percent year-to-date. He noted that Nigeria's interest rates remain among the highest in Africa, continuing to attract foreign investment despite the recent reduction.
Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise, characterized the policy direction as appropriate and growth-supportive. He emphasized that this adjustment reflects improving macroeconomic fundamentals and reinforces confidence in the economy's stabilization trajectory.
The CPPE issued a statement welcoming what it described as the Central Bank's cautious, data-informed policy adjustment. The organization highlighted that the rate cut reflects improvements in key macroeconomic indicators, including lower inflation, rising foreign reserves, a healthier trade balance, and greater foreign exchange stability.
Considerations for Policy Implementation
Analysts have identified several priorities that require attention for the full benefits of monetary easing to materialize. These include strengthening the transmission of monetary policy to ensure that lower rates effectively reach the real sector of the economy, and implementing credible fiscal consolidation measures to maintain macroeconomic stability.
Adebowale Funmi, head of research at Parthian Securities, offered a note of caution regarding global oil market volatility. She indicated that lower oil prices could potentially widen Nigeria's fiscal deficit and increase government borrowing needs, suggesting that interest rates may still need to remain attractive to investors despite the recent reduction.
Broader Economic Context
This monetary policy development occurs against the backdrop of Nigeria's foreign exchange reserves climbing to their highest level in eight years. Data from the Central Bank shows that gross external reserves rose to $46.012 billion as of January 22, 2026, marking an increase of approximately $510 million since the beginning of the year. This reserve accumulation offers renewed optimism for the naira and strengthens the country's external buffers amid ongoing economic reforms.
Market observers will continue monitoring how this interest rate adjustment influences both official and parallel market exchange rates in the coming weeks, particularly as it interacts with broader economic reforms and global market conditions.
