Market News

The naira ended the last five trading days largely flat across the various segments of the foreign exchange (FX) market, even as the nation’s external reserves rose by $700 million.

Data from the Central Bank of Nigeria (CBN) showed that the naira depreciated slightly by 0.14 percent during the five-day trading period, supported by a marginal increase in dollar demand.

The local currency closed at N1,534.71 per dollar on Friday, indicating a week-on-week depreciation of N2.17 from N1,532.54 recorded on Monday, the first trading day of the week at the Nigerian Foreign Exchange Market (NFEM).

At the same time, Nigeria’s external reserves climbed to $38.63 billion as of July 24, 2025, compared to $37.93 billion on July 18, 2025. This represents a $700 million increase within a week, reflecting renewed inflows and positive sentiment around the naira.

Similarly, the parallel market, popularly known as the black market remained relatively flat. The naira traded at N1,532 per dollar on Friday, down slightly from N1,530 on Monday, representing a marginal loss of 0.13 percent.

A new report by Comercio Partners provides context to Nigeria’s evolving FX landscape. It noted that from 2014 until mid-2023, the country operated a managed-float exchange rate regime, characterised by multiple exchange rates: the CBN’s official rate, the Investors’ and Exporters’ (I & E) window rate, and the parallel market rate. This fragmented system caused significant price distortions and created ample arbitrage opportunities.

To address the distortion, the CBN introduced the “Willing Buyer – Willing Seller” model on April 21, 2023, aiming to unify the exchange rate regime. Although this policy came before the appointment of Olayemi Cardoso, governor of the CBN, he inherited its implementation and has since overseen efforts to stabilise the system under a semi-liberalised framework that allows greater market influence, though still short of full flexibility.

Before the unification, the gap between the official and parallel rates exceeded N200, severely undermining policy credibility and fueling arbitrage. However, following the reform, the official rate adjusted rapidly to align with the parallel market, resulting in a sharp depreciation of the naira. By early 2024, the two rates had nearly converged, and since then, the naira has been trading within a relatively narrow range of N1,500 to N1,700 per dollar.

“We expect the Naira to continue to trade within the range, in H2, and any deviation will be corrected by the CBN intervention to defend the Naira,” analysts at Comercio Partners said.

The report further projects that Nigeria’s external reserves will rise to approximately $43 billion by the end of 2025, marking a 15.6 percent increase from the end-June 2025 level. This anticipated growth is attributed to several tailwinds, including a relatively stable currency, a reduced need for CBN interventions, stronger foreign portfolio and direct investment inflows, and an overall improvement in Nigeria’s economic outlook. Recent credit rating upgrades and favorable assessments from the three major global rating agencies further reinforce investor confidence.

Additional factors expected to support reserve growth include high interest rates and the implementation of supportive remittance frameworks such as the Non-Resident BVN (NRBVN), Non-Resident Nigerian Ordinary Account (NRNOA), and the Non-Resident Nigerian Investment Account (NRNIA), all aimed at encouraging diaspora participation in the formal financial system.

The report also highlights a likely reduction in imports as the naira’s current valuation discourages excessive importation, while progress toward fuel self-sufficiency is set to reduce the country’s fuel import burden. The Dangote Refinery, for instance, plans to source all its crude oil needs locally by the end of 2025, which could significantly ease pressure on reserves by cutting the demand for imported crude.

Nonetheless, some downside risks remain. Chief among them is the obligation to repay Eurobond principal and interest totaling $1.8 billion in the second half of 2025. Other headwinds include bearish trends in oil prices amid OPEC+ supply increases, prices falling below Nigeria’s $75 per barrel budget benchmark, and persistent domestic oil production challenges, all of which could weigh on government revenues and reserve accretion.