Nigeria’s Exchange Rate Liberalisation, Others Feature on Fitch’s Ratings

Nigeria’s exchange rate liberalisation policies, monetary policy tightening as well as  deficit monetisation have attracted the attention of globally renowned rating agency, Fitch.

Taking a holistic look on the impact of recent policy reform measures as it affects these and more sectors of the economy, Fitch upgraded Nigeria’s rating Stable Outlook, stating:

“The upgrade reflects increased confidence in the government’s broad commitment to policy reforms implemented since its move to orthodox economic policies in June 2023, including exchange rate liberalisation, monetary policy tightening and steps to end deficit monetization.

Other such efforts have been targeted at removing fuel subsidies, and the agency said these have improved policy coherence and credibility and reduced economic distortions.

It said Nigeria has also been able to experience stability, enhancing resilience in the context of persistent domestic challenges and heightened external risks.

The Stable Outlook reflects Fitch’s expectation that the macroeconomic policy stance will sustain improvements in the functioning of the FX market and support the move to lower inflation, although it will likely remain far higher than rating peers.

READ ALSO: Our Country In Revealing Statistics, Judge For Yourself

READ ALSO: Naira Exchange Rate Appreciates N1,615/$1 Amid CBN Forex Liquidity Boosts

“Additionally, we anticipate a continued reduction in external vulnerabilities through further easing of domestic FC supply constraints, while renewed energy sector reforms should help sustain current account surpluses”.

According to the agency, the Central Bank of Nigeria’s (CBN) recent introduction of an electronic FX matching platform and a new FX code to enhance transparency and efficiency, along with monetary policy tightening, has led to a greater rise in FX liquidity and general stability in the FX market after a 40% depreciation in 2024.

The policy move, Fitch stated, had enabled a closing of the spread between the official and parallel exchange rates, even as net official FX inflows through the CBN and autonomous sources rose by about 89% in 4Q24, compared to an 8% rise in 4Q23.

“We expect continued formalisation of FX activity to support the exchange rate, although we anticipate modest depreciation in the short term.

Aside exchange liberalization,  it submitted that the apex bank in Nigeria had succeeded in tightening monetary conditions through a combination of policy rate hikes to 27.5% (up 875bp since February 2024) .

The CBN has also used prudential and operational tools such as open market operations (at rates closely aligned to the MPR) to strengthen monetary policy transmission after years of financial repression, it stated, adding:

“We project inflation, which reached 23.2% year-on-year in February 2025 under the recently rebased CPI, to average 22% in 2025 (‘B’ median 4.3%) and 20% in 2026.

READ ALSO: Nigeria Records Highest Remittance Inflows Of US$553m

“Fitch does not anticipate a premature easing of monetary policy that would undermine the benign effects of the policy adjustment, given high inflation”, the rating added.