Market News

By Wasiu Alli

Nigeria’s naira is expected to remain largely stable despite the Iranian war that has pressured major currencies on the continent, according to a new report by Mauritius’s largest bank, MCB Group.

The projected stability will be supported by the ramped-up production of the Dangote Refinery and its export into other African markets, which has reduced fuel import demand and generated FX inflows, thereby easing pressure on reserves.

“In our moderate case, stabilising sentiment should allow the naira to trade below 1,350/USD,” MCB Group, which has a presence across African countries, including Lagos, wrote in the first edition of its flagship publication Africa Economic Compass.

The naira ended 2025 with about 8 percent gain, marking its first positive year in more than a decade. It entered this year with the same improving FX liquidity, supported by exchange-rate reforms and a gradual return of portfolio inflows. 

However, some pressures emerged as the USD strengthened in the wake of the war, prompting the Central Bank of Nigeria to intervene in the market, as reflected in the downward movement of the external reserves from over $50 billion to now $48.5 billion as of the time of filing this report.

The naira was quoted at 1,350.74/USD at the official window on Tuesday, compared to 1,349.64 per dollar the previous day. The currency has been within this bandwidth for the past three months, except on March 9 and 10, when it crossed 1,400 to the dollar, reflecting sustained stability despite Middle East tension.

The report highlighted Nigeria as one of the few African economies that could benefit from higher oil prices occasioned by the war in Iran, even as it still faces significant domestic constraints.

According to the report, Nigeria’s ongoing macroeconomic stabilisation, driven by exchange rate reforms, fuel subsidy removal, and tighter monetary policy, is beginning to yield results, with improved external balances and renewed investor confidence.

MCB identifies three key dynamics shaping Nigeria’s outlook, including upside from higher oil prices, supporting export revenues and fiscal balances; structural shift in the energy sector, driven by the ramp-up of the Dangote refinery, reducing reliance on fuel imports and easing FX pressures; and persistent fiscal constraints, with interest payments absorbing over 30 percent of government revenues.

In this context, Nigeria’s growth outlook remains relatively resilient, even as the broader region faces headwinds from rising energy costs and tighter financial conditions.

However, the report cautions that inflationary pressures, exacerbated by a roughly 40 percent increase in fuel prices, and potential election-related spending could limit the scope for monetary easing.

Before the war, analysts had expected a bumper slash in the borrowing rate, following years of aggressive tightening to tame sky-high inflation. Authorities began the year with a token rate cut of 50 basis points, putting the country’s benchmark interest rate at 26.5 percent in February.

But the conflict in the Middle East has erased a likely rate cut in at least most parts of this year due to the seeming return of inflationary pressures as prices rose 15.38 percent for the first time in a year.

“We expect the Central Bank to adopt a more cautious approach and slow the pace of rate cuts, with the policy rate at 23.5% by year-end.” 

MCB’s newly introduced Macroeconomic Pressure Index (MePI) suggests that Nigeria’s macroeconomic pressures remain broadly contained in the near term, supported by stronger domestic savings and improved external dynamics.

“Nigeria stands out as a relative beneficiary of current global dynamics, but sustaining this momentum will require continued policy discipline and stronger revenue mobilisation,” wrote Jessen Coolen, economic research lead at MCB.

Over the medium term, Nigeria’s ability to translate oil windfalls into sustainable growth will depend on structural reforms and fiscal consolidation.