The US Federal Reserve’s decision to raise interest rates by 25 basis points could increase pressure on emerging markets as investors reassess the returns available from dollar-denominated assets.
The Federal Open Market Committee (FOMC) voted unanimously on Wednesday to raise the benchmark federal funds rate to a range of 3.75% to 4%, marking the first increase since July 2023.
The committee also indicated the possibility of another hike later this year.
For Nigeria, analysts who spoke separately to Nairametrics say elevated domestic yields could help retain foreign portfolio investors, although exchange-rate volatility and imported inflation remain potential risks.
Dr. Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), told Nairametrics that the rate hike could trigger some movement of portfolio investments from emerging markets to the United States.
However, he said Nigeria’s high domestic yields could limit the scale of potential outflows.
Yusuf pointed to returns available on Open Market Operations (OMO) bills, treasury bills and bonds, saying they could help keep portfolio funds in the local market.
On his part, Dr. Yusha’u Aliyu, an Abuja-based economist, policy analyst and financial expert with the Institute of Professional Economists and Policy Management (IPEPM), said the US rate increase could also affect Nigeria through financial markets and the cost of imported goods and services.
He noted that some Nigerian payment points are working towards listing on US stock markets, adding that developments in the US could have implications for financial services pricing.
Aliyu also said the Fed’s decision should not automatically trigger a similar move by the Central Bank of Nigeria (CBN).
He added that Nigeria’s monetary policy decisions would need to account for domestic economic conditions, including the pressure high borrowing costs place on businesses.
He expects the Monetary Policy Rate (MPR) to continue moderating if inflation eases.
Dr. Abimbola Oyadele, an analyst at Kwik Securities Ltd, said higher US interest rates could strengthen the appeal of dollar-denominated assets and affect portfolio flows into Nigeria.
However, he noted that Nigeria’s external position has improved, with foreign reserves rising to around $54 billion.
Ayodele added that the CBN may need to maintain a relatively tight monetary stance for longer if external monetary tightening puts pressure on the exchange rate and inflation.
In July, the CBN retained the MPR at 26.5%, maintaining its tight monetary policy stance.
President Bola Tinubu appointed Cardoso as CBN governor in 2023, and the government set out to implement a series of monetary and fiscal policies reforms, including floating the local currency and initiating tight monetary policy to combat inflation and exchange rate volatility.
The most dramatic phase of tightening occurred in 2024 when the CBN raised the benchmark rate six consecutive times, taking it from 18.75% to 27.50% in November 2024.
At its 306th meeting, MPC voted to retain Cash Reserve Ratio at 45% for commercial banks and 16% for merchant banks.
The Standing Facilities Corridor remained at +50/-450 basis points around the MPR.
The CRR on non-TSA public sector deposits was retained at 75%.
The next meeting of the Monetary Policy Committee is scheduled for September 21 and 22, 2026.
