FDIs: Nigeria Tipped To Benefit As US Cuts Interest Rates By 0.5%

Nigeria and other countries in emerging and frontier markets are expected to benefit from increased capital inflows, following the announcement by the US central bank, the Federal Reserve yesterday, that it would lower the target for its key lending rate by 0.5 percentage points, to the range of 4.75 per cent.

The widely expected cut, the Fed’s first lowering of interest rates in over four years, is bigger than many analysts had predicted just a week ago, and comes as officials have noted increasing concern about rising unemployment rates.

According to financial experts, cheaper borrowing costs in the US will allow foreign investors to borrow some funds in the world’s biggest economy and and invest in Nigeria, a development that will boost capital inflow into the country and enhance the Central Bank of Nigeria’s (CBN) ability to ensure exchange rate stability.

The rate cut will bring relief to borrowers across the US, who have been facing interest rates hovering at the highest levels in more than two decades.

The Federal Reserve is widely expected to keep lowering rates to around 4.5 per cent or even four per cent by the end of the year, with more cuts in 2025.

Fed policymakers have said that they don’t see the policy rate returning to the sub-two per cent levels that prevailed for more than a decade before 2022. However, lower interest rates should translate to cheaper borrowing costs for most kinds of loans.

The Central Bank of Nigeria had since June last year been introducing reforms in the forex market, aimed at attracting forex inflow.

In an interview with Bloomberg in June this year, CBN Governor, Olayemi Cardoso, said that the reforms resulted in the country recording a total foreign exchange inflow of about $24 billion in the first quarter of 2024, which is about 50 per cent above the inflows recorded in previous quarters up to about 2021.