Market News

BY Tony Chukwunyem

Buoyed by a strong external reserves position, the Central Bank of Nigeria (CBN) has, in the last few weeks, signalled that it is focused on ensuring that the naira’s recent weak- ness does not give speculators the opportunity to undermine exchange rate stability, writes TONY CHUKWUNYEM

In his keynote address at an event in Lagos in October, this year, a former Statistician-General of Nigeria, who is now the Group Chief Economist and Managing Director of the African Export-Import Bank (Afreximbank), Dr. Yemi Kale, commended the country’s economic reforms, especially, the Central Bank of Nigeria’s (CBN) foreign exchange (FX) policies, which he noted, have made the naira’s real effective exchange rate the most competitive it has been in two decades.

According to him, the introduction of a more flexible exchange rate regime has acted as a natural shock absorber, allowing the local currency to adjust gradually to fluctuations in oil prices or global economic conditions, rather than triggering sudden crises in the balance of payments.

Kale stated that the CBN was no longer compelled to sell scarce foreign exchange at subsidised rates, adding that exporters have also been freed from the penalties of an overvalued currency, thereby creating a healthier environment for trade and investment.

FPIs surge

He noted that investors had responded positively to the reforms, as reflected in rising foreign exchange reserves, which climbed from approximately $32.9 billion at the end of 2023 to over $38.8 billion by mid-October 2024.

The Afreximbank Group Chief Economist also noted that by mid-2025, verified foreign exchange backlogs had largely been cleared, and the external reserves had surpassed $42 billion, a three-year high.

Kale further emphasised that the reforms have strengthened macroeconomic management by providing the CBN with clearer policy signals through a unified, more market-reflective, and rules-based exchange rate system.

“Reforms are not merely policy adjustments but deliberate, strategic decisions aimed at stabilizing the present and securing a prosperous future. They require patience, persistence, disciplined execution, and the capacity to follow through,” Kale said.

According to him, the transparent foreign exchange regime has attracted a surge of Foreign Portfolio Inflows (FPIs), which has helped to stabilise the naira.

Reserves hit $46.7bn

Indeed, in his address at an event to mark the 20th Anniversary of the CBN’s Monetary Policy Department, last month, the apex bank’s Governor, Olayemi Cardoso, who was represented by the Deputy Governor in charge of Economic Policy, Dr Muhammad Abdullahi, announced that the country’s foreign exchange reserves had surged to their strongest level in seven years, hitting $46.7 bn as of November 14, 2025.

He noted that the reserves milestone reflected renewed investor confidence, improved oil receipts, and stronger balanceof-payments inflows.

“Foreign reserves have risen to $46.7 billion as of November 14, 2025, providing 10.3 months of import cover in goods and services, supported by sustained inflows and renewed investor participation across various asset classes.

This accretion reflects investor confidence in our policies leading to improved oil receipts, stronger balance of payments, and renewed foreign portfolio inflows,” Cardoso said.

He contended that the stronger reserve position was a key factor boosting naira stability, noting that the gap between the official and Bureau de Change (BDC) windows had narrowed to below two per cent.

The CBN Governor also noted that the local currency’s recovery has encouraged foreign participation in Nigeria’s fixedincome and money markets, with investors responding to clearer policy signals and tighter monetary conditions.

Cardoso said the reforms driving foreign-currency inflows had also translated into sustained disinflation with headline inflation easing to 16.05 per cent in October 2025, from 34.6 per cent at its peak in November 2024.

Stable reserves

Interestingly, in a report released on December 6, which focused on apex bank data, showing that the country’ gross official reserves increased by $1.5 billion Month-on-Month (MoM) to $44.7 billion as of the end of November 2025, analysts at FBNQuest Research predicted that the exchange reserves are likely to, “remain broadly stable, supported by improved market transparency, greater efficiency, and the sustained impact of Central Bank of Nigeria’s (CBN) FX market reforms.”

The analysts said: “The recent accretion to the reserves represents a gain of $3.8 billion over the 11 months to November 2025, and a more pronounced gain of $7.5 billion since June 2025, when reserves were around their year-to-date lows.

“Although the latest gain can be primarily attributed to the $2.4 billion Eurobond issue in November 2025, FX receipts from oil exports and resilient remittance inflows also contributed. Notably, part of the Eurobond proceeds was allocated to refinance the $1.2 billion Eurobond maturity in November 2025.”

“Total reserves covered 13.9 months of merchandise imports per the balance of payments for the 12 months to March 2025, and 9.4 months when we add import- ed services,” the analysts added.

They, however, noted that despite the, “robust MoM accretion in gross official reserves, the naira depreciated by 1.8 per cent MoM to N1,446.7/USD.”

While attributing the naira’s depreciation to, “seasonal FX pressures, driven by year-end holiday travel demand and the settlement of import bills by businesses and manufacturers,” the analysts said: “Looking ahead, we expect gross official reserves to remain broadly stable, supported by improved market transparency, greater efficiency, and the sustained impact of CBN’s FX market reforms.”

Naira weakness expectation

However, in another report released last week, the FBNQuest analysts predict

The naira has remained broadly stable following the 2023 foreign exchange reforms, and has appreciated by about seven per cent year-todate through October, while the current account remains with a solid surplus

ed that activities usually associated with the festive season may lead to renewed demand pressure on the naira in the coming days. Citing FMDQ data, the analysts highlighted the fact that the CBN, “ramped up FX sales in November amid weak supply.”

Specifically, they said: “Recent data released by the FMDQ shows that total FX inflows into Nigeria’s FX market fell sharply by -67 per cent Month-on-Month (MoM) to $2.0 bn, compared with $6.1 bn in the previous month.

This represents the weakest FX supply since July 2024, when FX inflows stood at $1.9 billion. Amid persistent demand pressures, the tight liquidity in the FX market heightened volatility in the exchange rate during the review month.

As a result, the naira depreciated by -1.3 per cent MoM, closing November at $1,446.90/USD.” The analysts, who attributed the limited FX supply last month to “subdued inflows from offshore participants,” noted that “despite the appeal of elevated interest rates, Foreign Portfolio Investors (FPIs) – typically a significant source of FX liquidity – stayed on the sidelines throughout the month, resulting in constrained dollar inflows.

Consequently, FPI inflows decreased to $593 m from $3.5 bn in the previous month, the lowest level observed since $546 m reported in April 2025.”

They also noted that the FPI data shows that offshore investments in fixedincome securities accounted for about 97 per cent of total offshore inflows, amounting to $575 million.

In addition, they pointed out that “Foreign Direct Investment (FDI) remained subdued, plunging to a mere $10.4 million from $221 million in the previous month, amid persistent concerns over insecurity and fiscal direction,” while FX contributions from other foreign corporate decreased by -67 per cent MoM to nearly $55 m last month.

CBN intervention in Fx market

According to the analysts: “Given the constrained FX supply from foreign sources, the CBN maintained an active presence in the market in November, with FX sales more than doubling to $318 million from $106 million in the previous month.

“Excluding the CBN’s FX sales, contributions from other domestic sources weakened during the review month. FX supply from domestic corporates declined to $443 million from $683 million.

“Additionally, FX remittances from exporters/importers and individuals fell sharply by -42 million MoM and -76 million MoM to $460 million and $146 million, respectively.”

Still, while stating that they are anticipating renewed demand pressure on the naira that will be “driven by festive related activities,” the analysts predicted that, “a stronger reserves position and increased FX diaspora remittances are expected to support market liquidity and help moderate volatility in the exchange rate.”

World Bank’s advice

Significantly, in the October 2025 edition of its Nigeria Development Update, the World Bank outlined key strategies, which it said, Nigeria must adopt to achieve and sustain long-term stability for the naira.

The bank said that while recent reforms have helped stabilise the naira and improve FX market functioning, the country remains vulnerable to external shocks due to a narrow export base and dependence on short-term capital inflows.

To ensure lasting stability of the local currency, the World Bank urged the government to focus on longer-term foreign exchange inflows from oil, remittances, and especially non-oil exports. It also called for a more transparent FX policy framework and progressive adjustments to regulations governing banks’ foreign currency positions.

The World Bank observed that the Nigerian FX market, despite notable reforms, still heavily relies on inflows from FPIs and interventions by the CBN.

It stressed that for the FX market to become sustainably liquid and marketdriven, Nigeria must focus on attracting more durable sources of foreign exchange, particularly through increased oil earnings and formalised remittance channels.

It also harped on the urgent need to expand and diversify the country’s export base beyond oil, which requires tackling longstanding supply-side constraints.

Moody’s statement

Similarly, in the commentary note it recently released following the completion of its latest review of Nigeria’s economy, Moody’s Ratings stated that while the nation’s ratings reflect fiscal pressures arising from very limited revenue-generation capacity, despite measures to improve tax collections, and weak debt affordability, “these challenges are balanced by the country’s large and diversified economy, underpinned by strong domestic demand potential, and more robust external buffers built over the past two years following the overhaul of foreign-exchange management.”

It emphasised that the Nigerian economy remains strong in 2025, with GDP growth near four per cent in the first half of the year, broadly in line with 4.1 per cent in 2024, despite subdued oil production.

As the agency put it: “Output has increased to an average of 1.66 million barrels per day, up from 1.52 in the same period of last year, but still well below the 2.1 million medium-term target.

“Inflation eased to 16.1 per cent in October, down from near 25 per cent in January. In late September, the Central Bank of Nigeria cut its policy rate by 50 basis points to 27 per cent, signalling the start of a gradual easing cycle.

“The naira has remained broadly stable following the 2023 foreign exchange reforms, and has appreciated by about seven per cent year-to-date through October, while the current account remains with a solid surplus.”

“We expect external buffers to remain solid through 2025, with the current account surplus only slightly below last year’s level, around 6%, before narrowing in 2026 to 3.8 per cent under our assumption of oil prices averaging $60 per barrel,” Moody’s stated.

Conclusion

Given that exchange rate stability is key to tackling inflation and other challenges, experts believe the CBN is right to continue to intervene in the forex market to bolster the naira.