The Nigerian Naira has continued its remarkable appreciation against the U.S. dollar, driven by strategic interventions from the Central Bank of Nigeria (CBN) and implementing reforms in the foreign exchange (FX) market.
Over the past week, the Naira strengthened to N1,515 per dollar in the parallel market, a significant leap from its earlier position of N1,660. Similarly, in the official market, the Naira closed at N1,535 per dollar on Friday, gaining N32 from the previous day’s N1,567, according to CBN data.
This rapid appreciation has sparked optimism among traders and analysts, with speculations that the currency could climb even further. Some traders believe the Naira may reach as low as N1,400 per dollar in the parallel market, reflecting the growing confidence in Nigeria’s FX reforms.
Tekedia Mini-MBA edition 16 (Feb 10 – May 3, 2025) opens registrations; register today for early bird discounts.
Tekedia AI in Business Masterclass opens registrations here.
Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.
Aminu Gwadabe, President of the Association of Bureaux De Change Operators of Nigeria (ABCON), acknowledged the possibility of further gains but noted that it might not appreciate beyond N1,500.
“It is achievable considering the enhanced investor confidence,” he remarked. “But I want to believe further appreciation levels may not go beyond N1,500/$.”
Bismarck Rewane, CEO of Financial Derivatives Company, offered a more conservative outlook, projecting that the Naira could stabilize at around N1,525 per dollar by 2025. Rewane highlighted the importance of sustained reforms and confidence-building measures to achieve long-term stability.
Central to this positive trend is the CBN’s introduction of the Bloomberg BMatch platform, a cutting-edge electronic forex trading system aimed at enhancing transparency and efficiency in Nigeria’s FX market under the Electronic Foreign Exchange Matching System (EFEMS). The directive mandating all banks operating in the interbank FX market to adopt the platform was issued on November 26, 2024, and the system became operational on December 2, 2024.
EFEMS has been touted as a game changer for Nigeria’s FX market. The system eliminates opaque trading practices, reduces speculative activities, and fosters a more predictable trading environment by providing a structured mechanism for matching buyers and sellers. Analysts have hailed its introduction as a critical reform that addresses the longstanding inefficiencies and malpractices in the market.
Factors Driving the Naira’s Appreciation
The Naira’s recent gains can be attributed to a combination of factors, including improved investor confidence, rising foreign exchange inflows, and structural market reforms. Gwadabe pointed to substantial dollar inflows from portfolio investors, citing oversubscribed bond issues as evidence of renewed interest in Nigeria’s economy.
“The increasing level of confidence among portfolio investors has resulted in substantial dollar inflows, as evidenced by the oversubscribed bond issues. This has significantly helped the Naira recover,” he explained.
Nigeria’s foreign exchange reserves, which recently surpassed $40 billion, have also played a pivotal role. The increased reserves have empowered the CBN to intervene more effectively in the FX market, reducing volatility and fostering stability. Gwadabe highlighted other contributing factors, including improved crude oil and gas production, as well as rising diaspora remittances, which now average $600 million monthly through international money transfer operators (IMTOs).
Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), described the Naira’s appreciation as a significant relief for individuals and businesses grappling with economic challenges. He emphasized the broader economic benefits of a stronger currency, particularly in curbing inflation and reducing the cost of doing business.
“It is a development that gladdens the hearts of individuals and corporates because the exchange rate issue has been one of the biggest challenges facing the economy. It has been one of the biggest drivers of inflation and the high cost of doing business. So, it’s a great relief that we are having this development,” Yusuf remarked. “Our prayer and hope is that this will be sustained going forward.”
He noted that the improved external reserves have bolstered the CBN’s ability to stabilize the currency.
“In recent times, we have seen an improvement in our reserves, which implies that the CBN has much better capacity to intervene in the foreign exchange market. Over the past five months, we have seen relative stability in the Naira exchange rate, and now we are beginning to see a strengthening of the currency,” he said.
He also emphasized the importance of boosting autonomous forex inflows through international money transfers and export activities.
“As confidence improves, speculative demand in the foreign exchange market will reduce, and this is already playing out. The CBN has also been actively cleaning up the foreign exchange environment, addressing malpractices, and eliminating speculative activities,” Yusuf added.
Challenges on The Path to Sustainability
Despite the progress, experts have warned of potential challenges that could undermine the Naira’s stability. Yusuf stressed the need for fiscal discipline and alignment with monetary policies to sustain the current momentum. He pointed to government spending, fiscal deficits, and debt accumulation as critical variables requiring careful management.
“Our fiscal operations should be such that they don’t create liquidity challenges in the economy, which could put new pressures on the Naira. We need to moderate deficits, debt levels, and possibly even government expenditure to complement what is being achieved on the monetary side,” Yusuf advised.
He further called for enhanced efforts to boost oil production and combat oil theft, emphasizing the importance of strengthening Nigeria’s forex earnings. Yusuf also highlighted local manufacturing and import substitution initiatives, such as the Dangote Refinery, as critical to reducing Nigeria’s reliance on imported fuel and easing forex pressures.
“What is important is to ensure sustainability,” Yusuf concluded. “With the right mix of fiscal and monetary policies, we can maintain this positive outlook and drive long-term economic growth.”