Nigeria’s foreign exchange market in January 2025 tells a story of shifting control—one that subtly exposes the weakening grip of the Central Bank of Nigeria (CBN) over the country’s forex inflows, even as private players quietly expand their footprint.

According to the January 2025 Economic Report released by the CBN on April 17, net foreign exchange inflows into the economy dropped to $4.79 billion, down 4.49% from $5.01 billion recorded in December 2024. At first glance, this may seem like a minor dip. But scratch beneath the surface and a deeper trend becomes evident: the sharp decline in CBN-led inflows contrasts starkly with the surge in autonomous inflows—those from non-government sources like private exporters, international investors, and diaspora remittances.

The central bank’s share of foreign exchange inflows plummeted to $2.33 billion in January, a dramatic fall from $4.09 billion in December—a 43% drop in just one month. On the other hand, autonomous inflows surged to $7.31 billion from $6.08 billion, marking a growing confidence in private channel participation amid the government’s struggle to maintain its influence in the FX ecosystem.

While aggregate inflows fell from $10.17 billion to $9.63 billion during the period, foreign exchange outflows also eased to $4.84 billion from $5.17 billion. But it’s the breakdown of these flows that truly reshapes the narrative. Outflows through the CBN dropped to $3.80 billion from $4.16 billion, yet that reduction did not cushion the impact of falling inflows through the same channel. What resulted was a net outflow of $1.47 billion via the CBN—a reversal from the marginal net outflow of $0.07 billion in December. Autonomous sources, by contrast, posted a net inflow of $6.26 billion, up from $5.07 billion.

Naira Finds Strength, Turnover Rises

The foreign exchange market itself responded in kind. The naira appreciated at the Nigerian Foreign Exchange Market (NFEM), strengthening by 1.16% to an average of N1,535.94 per US dollar in January from N1,553.73 in December. The end-period exchange rate fared even better, gaining 3.90% to close at N1,478.22 from N1,535.82.

Increased confidence among market participants also translated into activity. Average daily turnover on the NFEM jumped 18.30% to $408.49 million, up from $345.30 million in December, underscoring a more liquid market with greater participation—again, largely driven by the non-official segment.

Is CBN Losing Its Grip on FX Inflow?

While the improvement in the exchange rate and growing liquidity appear encouraging, the underlying shift in forex inflow dynamics calls for concern. A declining share of inflows through the CBN signals dwindling government capacity to intervene in the market when necessary. This erosion of influence can become problematic if external shocks hit—especially in the absence of robust reserves or policy buffers.

It also poses a challenge to the country’s balance of payments, which leans heavily on oil receipts and foreign investments typically channeled through official sources. As the CBN recedes, the onus shifts to private capital to plug the gap—an unreliable solution at best in an economy where investor confidence can evaporate quickly.

Yet the rise in autonomous inflows may offer some hope. It reflects renewed activity among non-oil exporters, possibly spurred by exchange rate adjustments and sustained remittance flows. If properly incentivized and regulated, these inflows could become more stable over time and help Nigeria reduce its overreliance on oil-linked forex.

The CBN’s declining role also speaks to broader questions of confidence in government-led monetary policy. The foreign exchange market has long been plagued by dual rates, inconsistent interventions, and a lack of transparency. Investors and exporters often prefer alternative channels to avoid bureaucratic delays or unfavorable rates. The result is an FX market where informal and autonomous channels increasingly call the shots.

Going forward, economic analysts argue that simply watching the naira appreciate month to month is not enough. They note that the government must address core structural problems: rebuild external reserves, improve non-oil exports, and restore trust in CBN’s policy framework.

According to them, Nigeria’s foreign exchange scene may continue to be dominated by autonomous actors, not out of strength, but because the official channels have ceded ground if the above steps are not taken.

President Donald Trump has repeatedly pressured Federal Reserve Chair Jerome Powell to lower interest rates, escalating tensions by publicly calling for Powell’s termination. Trump argues that cutting rates would stimulate the economy, citing falling oil prices and claiming tariffs are boosting U.S. wealth. However, Powell has warned that Trump’s sweeping tariff policies are likely to increase inflation and slow economic growth, creating a challenging scenario for the Fed’s dual mandate of price stability and maximum employment.

Trump’s Position

Trump has criticized Powell for being “too slow” and “wrong” on monetary policy, accusing him of playing politics by not cutting interest rates. In posts on Truth Social, Trump claimed that lower rates are needed as tariffs “transition” into the economy, asserting that the U.S. is “getting rich on tariffs” and that inflation is declining (despite data showing otherwise). He has even suggested Powell’s “termination cannot come fast enough,” reigniting concerns about the Fed’s independence, a norm Trump has historically challenged.

Powell’s Warnings

Jerome Powell, in speeches on April 4 and April 16, 2025, emphasized that Trump’s tariffs—described as significantly larger than anticipated—are likely to lead to higher inflation and slower economic growth. Tariffs, such as a 10% baseline on all U.S. imports and up to 145% on Chinese goods, are expected to raise consumer prices, potentially causing a temporary or even persistent rise in inflation. Core inflation was at 2.8% in February 2025, above the Fed’s 2% target.

The tariffs could weaken growth by disrupting supply chains and reducing consumer and business confidence. The Fed lowered its 2025 growth forecast to 1.7% from 2.1%.  Powell noted the risk of stagflation—a combination of rising inflation, higher unemployment, and stagnant growth—last seen in the 1970s. This would put the Fed in a bind, as raising rates to curb inflation could exacerbate unemployment, while cutting rates to boost growth could fuel inflation.

Powell advocated a “wait-and-see” approach, keeping the Fed’s benchmark rate at 4.25–4.5%. He stressed the need to monitor data to ensure inflation expectations remain anchored and avoid a one-time price increase becoming sustained inflation. Trump’s tariffs include 25% duties on steel, aluminum, and goods from Mexico and Canada, a 145% duty on Chinese imports, and a 10% baseline tariff on all imports, with some exemptions for electronics. Retaliatory tariffs from China (34% on U.S. goods) and threats from the EU have escalated global trade tensions.

U.S. stock markets have plunged, with the Dow dropping 1,600 points on April 4 and the S&P 500 falling 4.5%, marking some of the worst trading days since 2020. Global markets also slid, reflecting fears of a trade war and potential recession. Despite tariff concerns, the economy remains solid, with a 4.2% unemployment rate and 228,000 jobs added in March 2025. However, consumer confidence hit its lowest level since January 2021, and small-business uncertainty spiked.

Fed’s Dilemma and Independence

The Fed faces a delicate balancing act. Cutting rates, as Trump demands, could exacerbate inflation, especially if tariffs drive persistent price increases. Conversely, maintaining or raising rates to combat inflation risks further slowing growth and raising unemployment. Powell has emphasized the Fed’s independence, refusing to engage with Trump’s political remarks and focusing on data-driven policy. Economists like Kathy Bostjancic of Nationwide argue the Fed is unlikely to cut rates soon, predicting a pause until Q4 2025 as inflation accelerates. Others, like Chicago Fed President Austan Goolsbee, highlight the lack of a clear playbook for navigating stagflationary shocks.

While Trump’s tariffs aim to boost U.S. manufacturing and correct trade imbalances, the consensus among economists and Powell is that they risk backfiring by raising costs for consumers and businesses, disrupting global trade, and potentially triggering a recession. Trump’s claim that tariffs are reducing inflation contradicts data showing inflation at 2.8% and rising goods prices. His pressure on the Fed undermines its independence, a cornerstone of stable monetary policy. On the other hand, Powell’s cautious approach may be prudent but could be criticized for underestimating the need for preemptive action in a volatile trade environment. The lack of modern precedent for such large-scale tariffs (the Smoot-Hawley tariffs of 1930 being the closest parallel) adds uncertainty to forecasting outcomes.

Trump’s push for lower interest rates and Powell’s warnings about tariff-driven inflation and slower growth highlight a fundamental policy clash. The Fed’s decision to hold rates steady reflects caution amid unprecedented trade disruptions, but the risk of stagflation looms large. The coming months will be critical as tariff effects materialize, potentially forcing the Fed to make tough choices between fighting inflation and supporting growth. For now, Powell’s focus remains on anchoring inflation expectations while navigating an economy facing significant uncertainty.