The naira has, since December 2024, begun a winning streak after the Central Bank of Nigeria (CBN) rolled out some far-reaching reforms that have seen the currency gain at least nine percent since the beginning of 2025.
But there is much to be done to sustain the momentum so the gains could be felt by businesses and households which have been pinched the most following the liberalisation of the foreign exchange market in mid-2023, which has left the naira to lose about 70 percent of its value.
The narrative is changing albeit gradually. The local currency was quoted at N1,499 against the US dollar on Monday at the Nigerian Foreign Exchange Market (NFEM), data from the CBN showed.
On the street, it stood at N1,506/$.
More diaspora remittances and increased export earnings, especially from refined petroleum products, will keep hard currency reserves within $35 to $40 billion, enabling it to sustain the now three-month long stability in short to medium term, according to Rafiq Raji, a senior associate with the Africa programme at the Center for Strategic and International Studies think-tank.
Naira gains against other major currencies
The naira is not only just stabilising but equally gaining against major currencies such as the pound, euro and Canadian dollar since the apex bank began the Electronic Foreign Exchange Matching Systems (EFEMS) in December 2024, as per an earlier report by BusinessDay.
According to Samuel Sule, chief executive officer of Lagos-based investment and research firm Renaissance Capital Africa, the naira trajectory is ‘very positive,’ passing a vote of confidence on monetary policy and Nigeria’s economic growth prospects.
However, sustainability is subject to internal and external factors, including portfolio investments, oil price and domestic oil production, Sule said.
Robust net reserves needed to sustain naira rally
Nigeria needs to keep its net reserves robust and increase value asset for the exchange rate to be able to weather any storm, said Ayo Teriba, CEO of Economics Associate.
“The only thing that will determine the exchange rate is how much foreign currency you have. It has everything to do with the value of your assets,” the economist said.
“If you want the market to go back to where it has been sliding from, it’s a question of how much reserve you need to generate on those assets. If you deliver the reserves, you deliver the exchange rate. And the stronger your exchange rate, the bigger your GDP,” he further said.
For Kelvin Emmanuel, co-founder and chief executive officer of Dairy Hill, the CBN’s various policies, especially the matching system, has helped to eliminate the incentive for primary dealers to hold USD onshore for speculative reasons.
“While I will say that it’s not sustainable for the federal government to rely on hot money coming in from foreign portfolio investors (FPIs) at Nigerian treasury bills (NTB) stop limits above 20 percent, I think it’s important to realise that much of the current rally has come from FPIs,” Emmanuel said.
To sustain the hard-fought rally, the government needs to address institutional bottlenecks especially in the energy sector, according to Emmanuel.
“This will not only bring in capital imports (that are non-speculative) but also ensure that the oil receipts earned from lifting is remitted to CBN for balance of payments (and not used for settling FSAs), while ensuring that we can adopt a strategy that ensures we beneficiate crude into derivatives for net export proceeds.”
Reserves take a hit for naira gains
The primary essence of a nation’s reserves is to give its currency firepower, especially when it’s undervalued, according to Bismarck Rewane, managing director of Financial Derivatives Company.
But for Africa’s most populous nation, reserves fell for 33 days, hitting its lowest level since October 2024. If not adequately managed, they could reverse the trend of the recent gains of the naira.
“The haemorrhaging of that much hard currency reserves in so short a time is not sustainable, and the central bank should be told so unequivocally. It is abundantly clear it has not been to just smooth volatility, but an attempt to shore up the naira towards a band, ostensibly around the N1,500:US$1 area,” said Raji, a former Africa economist at Standard Chartered in London.
Meanwhile, the latest report from Afrinvest Securities Exchange Limited indicates that the country’s foreign reserves declined by 0.8 percent week-on-week (approximately $320.6 million), closing at $38.8 billion as of February 20, 2025.
The reduction is attributed to the CBN’s intervention in the foreign exchange market as it supplies U.S. dollars to commercial banks and Bureau De Change (BDCs) to support the naira.
“In our view, the CBN would be wise to keep intervening at NGN1,500/$ to buy up US dollars that flow in, rather than risk the NGN becoming more overvalued,” analysts at Renaissance Capital Africa said in a note recently.
Given this position, the Afrinvest analysts see the naira maintaining its positive trend across foreign exchange segments, provided the CBN sustains its dollar supply to BDCs and deposit money banks (DMBs), barring any unforeseen market shocks.
Naira to maintain stability on CBN intervention
The naira is expected to maintain stability this week and beyond as the Central Bank of Nigeria (CBN) continues to intervene in the foreign exchange (FX) market.
The CBN had directed the Bureau De Change Operators (BDCs) to purchase $25,000 weekly from authorised dealers at NFEM rates.
In a circular signed by W. J. Kanya, acting director of the Trade and Exchange Department, the CBN stated that further to the previous circular, dated December 19, 2024, which temporarily granted BDCs access to purchase foreign exchange from authorised dealers at NFEM rate, new guidelines are being implemented. These guidelines include a weekly purchase cap of $25,000 per BDC from authorised dealers.
On a monthly basis, the naira closed flat as the dollar was quoted at N1,500 on Friday, February 2025, the last trading day of the month compared to N1,499 quoted on February 3, 2025, the first trading day of the month at the NFEM, according to data provided by the CBN.
At the parallel market, popularly called black market, the naira appreciated by N94 to N1,505 on Friday, February 28, 2025, marking a 6.2 percent gain over N1,599 per dollar exchanged at the beginning of the month, data from street traders and online data collating platform has revealed.
“In March, we anticipate the Naira will maintain its positive performance across FX segments, supported by the CBN’s continued dollar supply to Bureau De Change (BDCs) and Deposit Money Banks (DMBs), provided there are no adverse market shocks,” analysts at Afrinvest Securities Limited said.
However, the naira lost N27.31 in one month to the euro as the currency closed at N1,552.93 per to one Euro on the last trading day in February 2025, losing 1.8 percent from N1,525.62/Euro quoted at the beginning of last month, data from the CBN showed.
On a day-on-day trading, the naira strengthened against the Euro, gaining N70. The euro was quoted at N1,500 on Friday compared to N1,570 quoted on Thursday at the black market.
The naira depreciated against pound by N42.53 or 2.3 percent in one month at the official FX market. The pound was quoted at N1,838.15 at the trading day of February 2025, as against N1,880.68 per pound quoted on Friday, 28, 2025, the last trading day of the month, the CBN data indicated.
At the black market, the naira appreciated against the pound by 2.6 percent day-on-day to N1,850 per pound on Friday 28, 2025 from N1,900/pounds on Thursday.
The Canadian dollar closed at N1,059 on Friday 28, 2025, the last trading day in February, the same rate seen on the previous day in the black market.
Nigeria’s external reserves declined by $1.18 billion in February, losing 2.98 percent to $38.41 billion as of February 28, 2025, from $39.59 billion recorded at the beginning of the month, data from the CBN showed.
According to a report by Afrinvest, the decline can be linked to CBN’s efforts to stabilise the naira, particularly through the resumption of payments for the verified portion of the outstanding $7.0bn foreign exchange backlog.
