Experts noted that the CBN's forex market interventions have slowed down due to a drop in external reserves, which were at $39.09 billion as of Thursday. This decline in foreign reserves started back in January and has continued into this month.
In the parallel market, the naira gained strength, moving up to around 1,552/$ from 1,660 the week before, with traders attributing this rise to better investor confidence.
However, in the official Nigerian foreign exchange market, the naira is still facing strong demand pressures.
According to the latest report from Meristem, the naira saw a week-on-week depreciation of 0.54%, dropping to 1509.70/$ from 1,501.61/$.
Aminu Gwadebe, the President of the Association of Bureau De Change Operators, shared his positive outlook on the naira's performance in an chat with The PUNCH. He remarked, “The performance of the naira was significantly positive. Naira performed positively throughout the past week from about 1660; we are now talking about 1552/$. That is significant.
“Providing insights into some of the drivers, Gwadebe said, “a combination of factors are playing together. The pick-up of the interbank proceeds to Bureaux de Change as directed by CBN is helping to inject liquidity and reduce panic in the market. Others are linking it to the Chinese holiday, which has possibly reduced the demand aspect. Thirdly, the FX Code has continued to bring some sanity, discipline, and monitoring oversight, and fourth, the confidence of the investor.”
“The market, especially the interbank, is awash with portfolio inflows. Also, there is no negative perception. All along, we have been battling with a negative perception, with confidence in even the management of the Central Bank, but they have been able to put some confidence in them now, especially since they have cleared the $7bn (FX) backlog, and the impact of the policy is making the CBN put their foot on the ground to ensure the reforms continue to give positive reports. They are doing a lot of forward guidance so that they can communicate with investors, operators, and other stakeholders. I think that approach has been giving a lot of people hope that the CBN has resolved to engage with stakeholders and work with them.”
Analysts at Cowry Assets Management Limited shared in their weekly market update that they expect the naira to remain fairly stable in the upcoming week, as long as there aren’t any major disruptions in the market. The ongoing market trends will continue to affect the supply and demand for the dollar, which will, in turn, impact how the local currency performs across different exchange platforms.
Recently, the naira has seen some gains, thanks to several factors, including the resolution of a $7 billion foreign exchange backlog and better liquidity in the market.
Central Bank of Nigeria Governor Olayemi Cardoso revealed that the Federal Government has successfully cleared the $7 billion foreign exchange backlog after a thorough verification process conducted by forensic auditors.
During the launch of Nigeria’s Regulatory Policy Framework, organized by the Presidential Enabling Business Environment Council, Cardoso expressed hope that clearing this backlog would help eliminate the challenges businesses, multinationals, and foreign investors face when repatriating funds.
He said, “In addressing foreign exchange liquidity constraints, decisive steps have been taken to clear the outstanding $7bn forex backlog to ensure that businesses, multinationals, corporations, and foreign investors can repatriate funds seamlessly.
Investment firm Comercio Partners has forecasted that the naira is likely to decline to approximately 1,700/$ by mid-year. In its 2025 macroeconomic outlook report, titled ‘Looking Forward to the Future,’ Comercio Partners indicated that the ongoing dependence on oil imports will persist in making the naira susceptible to fluctuations.
It stated, “Nigeria’s reliance on fuel imports has remained one of the primary drivers of dollar demand, placing persistent pressure on the naira. The economy’s limited capacity to generate sustainable dollar inflows through exports further exacerbates currency instability. Moreover, fiscal policy often fails to align with monetary efforts, creating a fragmented approach to economic management. These structural deficiencies limit the effectiveness of short-term measures and contribute to the naira’s vulnerability to external shocks.
“While Eurobond issuances provide temporary relief to Nigeria’s exchange rate challenges, their impact is fleeting in the absence of structural economic reforms. The CBN’s interventions, including EFEMS and rate adjustments, demonstrate the potential for short-term stabilisation but fall short of addressing the naira’s underlying vulnerabilities. As Nigeria moves into 2025, the combination of reduced fuel imports, improved investor confidence, and high-yield investment opportunities creates a pathway for stability. We project that the naira will close the first half of 2025 (at) N1,700-N1800 per dollar. However, only a holistic, coordinated effort between monetary and fiscal authorities can ensure sustained currency appreciation and broader economic resilience in the years ahead.”