Nigeria’s foreign exchange market faced significant headwinds in the first half of 2025, as global financial disruptions and risk-averse investor sentiment drove capital outflows and tested the resilience of the naira.
According to data from CardinalStone Partners Limited, offshore investors withdrew a total of $22.83 billion from Nigerian markets during the period, redirecting funds toward traditional safe-haven assets such as U.S. Treasuries and gold. The exodus came in response to heightened global uncertainty, including aggressive U.S. trade policies and rising geopolitical tensions that unsettled financial markets worldwide.
One key driver of these tensions was the continuation of steep U.S. tariffs on Chinese goods and other trading partners, part of a broader protectionist stance under President Donald Trump. The resulting tit-for-tat tariff war between Washington and Beijing roiled global trade and fueled risk-off sentiment that weighed heavily on emerging markets, including Nigeria.
Against this backdrop, the Central Bank of Nigeria (CBN) intervened aggressively to stabilise the exchange rate. According to CardinalStone, the CBN sold approximately $4.72 billion into the foreign exchange market in the first half of 2025. These interventions aimed to offset dollar shortages caused by capital flight and ensure that local demand for foreign currency could be met without destabilising the naira.
Breakdown of FX Market Dynamics
In its macroeconomic update, CardinalStone noted that the first quarter was particularly challenging, as sustained capital outflows drove up pressure on the exchange rate in the absence of significant dollar inflows. Without CBN support, analysts warned, the naira could have seen a far steeper depreciation.
Verto FX, in its own commentary, observed that local authorised dealer banks maintained what appeared to be near-limitless access to U.S. dollars during this period, pointing to substantial and proactive FX injections from the central bank.
Critics of the intervention strategy argue that such heavy involvement suggests the naira remains unable to float freely without central bank support. However, the CBN has maintained that its approach is consistent with its broader FX market reform, which includes the "willing buyer, willing seller" framework. This system allows the exchange rate to be largely market-determined while still permitting discretionary interventions to address perceived distortions.
“Contrary to concerns, we do not believe these interventions signaled a return to a fixed exchange rate regime or reflected an attempt to target a specific level for the naira,” CardinalStone said in its report. “Rather, the current FX framework allows for discretionary interventions in the presence of perceived market distortions.”
The firm further emphasised that the scale of interventions in early 2025 remained well below historical peaks. Average monthly interventions were estimated at $786.58 million—significantly less than the $2.30 billion pre-COVID levels and the $1.38 billion averages recorded post-COVID when the central bank was defending the naira more aggressively despite macroeconomic weaknesses.
Reserves, Debt Obligations, and Outlook
CBN’s ability to sustain these interventions was underpinned by its external reserves, which served as a buffer against short-term shocks. However, the central bank also faced external debt service obligations estimated at around $2.00 billion for the first four months of 2025 alone. At this pace, annual external debt payments are on track to exceed last year’s levels, adding to the pressures on Nigeria’s balance of payments and foreign reserves.
Despite these challenges, market analysts see reasons for cautious optimism. Both local and international observers increasingly agree that the naira is now trading closer to its fair value, reducing the need for unsustainable levels of intervention. The CBN has also taken steps to improve transparency in the foreign exchange market, helping rebuild investor confidence even amid global uncertainty.
As Nigeria continues to navigate these external headwinds, the central bank’s balancing act—providing liquidity when necessary while promoting market-driven pricing—will remain a critical element of the country’s economic stability strategy.