Nigeria’s naira has steadied after one of the most turbulent stretches in its history, but the reprieve is raising a harder question for policymakers: whether or not to push the naira higher or focus on keeping it predictable.
With inflation still elevated and capital flows rebounding, economists and analysts polled by BusinessDay say the Central Bank of Nigeria faces a delicate choice — chase appreciation to ease import costs and signal strength, or entrench stability at current levels to preserve credibility and avoid another cycle of distortions.
The naira, once worst performing currency, has gained about seven percent year-to-date at the official window, with billionaire industrialist Aliko Dangote and investor Femi Otedola recently expressing confidence that reforms will strengthen macro fundamentals and aid the currency to around N1,000 per dollar by year-end.
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That optimism was also expressed by President Bola Tinubu, who said the naira could have hit N1,000/USD if not for the intervention by the CBN to maintain market stability, fanning new fears on the next policy direction regarding the currency, especially as election momentum gains steam.
“Limiting exchange rate volatility should be the focus of the central bank, not naira strength,” said Rafiq Raji, a member of BusinessDay Board of Economists, stressing that if the apex bank wishes for a stronger naira, accretion of FX reserves would be a more sustainable approach than supplying the market to boost the currency, a move he said depletes reserves, and eventually makes foreign portfolio investors nervous.
Foreign inflows are rebounding, as reserves are growing faster than expected.
CBN governor Olayemi Cardoso said at the press briefing on monetary policy rate decisions that the country’s foreign reserves have now surged to $50.45 billion, the highest in 13 years. That’s almost the figure projected at the beginning of the year that the reserves will hit $51 billion by year end.
The growing reserves underscore the significant rise in inflows from portfolio investors. Data from the National Bureau of Statistics showed that portfolio inflows in Africa’s most populous nation surged by 225.6 percent to $14.3 billion in the nine months ended September 2025, accounting for 85 percent of total capital importation, compared with 60.5 percent a year earlier.
“The FPI flows are largely due to the carry trade, although market participants likely draw a lot of comfort from the rising level of foreign exchange reserves,” Raji, who was earlier quoted, told this reporter.
The naira has largely been cooling off against the dollar since the start of this week, partly due to some liquidity mop-ups which involve removing excess dollars from the banking system to control the naira’s strength.
Implications of a stronger naira
Nigeria has been more competitive than at any time in the past 25 years due to the currency devaluation embarked on in 2023, a radical policy that has put the country’s current account – the broadest measure of a country’s trade balance – firmly in surplus, according to David Lubin, senior research fellow at Chatham House.
“A stronger naira is tempting because as surely as its collapse pushes inflation up, a naira that gains in value would push inflation back down, as imports become cheaper in local-currency terms,” Lubin wrote in a piece last year. “The problem with this approach is that it would accelerate the disappearance of all the gains in competitiveness that have been won through the currency’s decline.”
Johnson Chukwu, chief executive officer of Cowry Asset Management also argued that Nigeria’s sustained positive balance of trade is partly because the naira is weak, a condition that has slowed down importation.
“If the naira strengthens beyond a certain level, importation will come back. And that may erode that positive balance of payment,” Chukwu said, warning that a stronger currency could incentivise imports, thereby brewing another round of inflationary pressures.
Africa’s largest oil producer recorded an overall trade surplus of N19.32 trillion in the nine months ended September 2025, marking the highest positive balance of trade in six years, supported by a weaker naira that’s incentivised exports.
Read also: NIGERIA IN BRIEF: The naira surges to a three-year black market high of N1,345
Why a stable currency matters
Six chief executive officers of some of the biggest companies in Nigeria prefer stability over sudden strengthening that could face reversal if the market dynamics shift.
The CEOs told BusinessDay that a currency that is predictable helps in planning and managing their operational costs, even though a gradual appreciation lessens dollar-denominated debt.
Tunde Abidoye, head of equity research at Lagos-based Quest Merchant Bank echoed the same sentiments, noting that stability enhances predictability for investors and businesses for planning purposes.
“A rapid appreciation could be followed by depreciation of capital flows reverse — particularly given the strong contribution of FPIs to capital inflows. I believe in a gradual, telegraphed appreciation that is done cautiously, bearing in mind the composition of capital inflows,” Abidoye said.
“The key macro condition has to be based on significantly improved FX earnings from oil and non-oil, FDI inflow, and to an extent, diaspora remittances. These are more sticky than FPI flows.”
