Market News

By Abdullateef Aliyu

Nigeria’s currency market ended February on a cautiously optimistic note, with the naira closing at N1,368/$ in the official window, marking a modest month-on-month appreciation and reinforcing growing confidence around the country’s external position.

Data from the Central Bank of Nigeria (CBN) showed that the naira strengthened from an opening rate of N1,384.5/$ at the beginning of February to 1,368.5/$ at month-end. While the currency experienced some volatility in the final trading sessions, the overall trajectory signaled improving fundamentals, underpinned by stronger foreign exchange liquidity and rising external reserves now approaching the apex bank’s $51 billion target.

Reserves surge toward $51bn

Nigeria’s gross external reserves climbed to approximately $49.5 billion as of February 25, edging closer to the CBN’s projected $51.04 billion year-end target for 2026. Earlier in the month, reserves had already crossed the $50 billion mark, reaching $50.45 billion as confirmed by CBN Governor Olayemi Cardoso.

The current reserve level represents the highest in about 13 years and is sufficient to cover more than 15 months of imports, a significant improvement from the fragile buffers recorded during the height of the currency crisis in 2023.

In the apex bank’s 2026 Macroeconomic Outlook, Cardoso had projected reserves would rise from $45.01 billion in 2025 to $51.04 billion in 2026. The drivers identified include stronger oil earnings, diaspora remittances, sovereign bond issuance, FX market reforms and increased domestic refining capacity.

The steady accretion to reserves has become one of the most important pillars supporting the naira’s rebound.

The naira’s current stability marks a stark contrast to mid-2023, when currency reforms triggered sharp depreciation following exchange rate unification. The liberalisation of the FX market, removal of fuel subsidies and cessation of central bank deficit financing initially created dislocations and volatility.

Over time, the local currency has found its feet, emerging as one of the best performing global currencies this year. The foreign reserves have also made significant gains, pushing through major hurdles and hitting $49.5 billion on February 25.

That means the CBN will be exceeding its forecast of over $51 billion reserves position this year.

The CBN stated, “The external reserves is projected at US$51.04 billion in 2026, compared with US$45.01 billion in 2025. The external reserves is expected to be boosted by reduced pressure in the FX market based on the anticipated rise in oil earnings, sovereign bond issuance, and diaspora remittance inflow.”

However, policymakers argued that the pain was necessary to restore credibility and attract foreign capital. Nearly three years later, early signs suggest the strategy may be bearing fruit.

The unification of exchange rates eliminated arbitrage opportunities and improved transparency in the FX market.

The clearance of over $7 billion in FX backlog obligations also reassured investors about repatriation risks, which had previously deterred foreign portfolio inflows.

As a result, Nigeria has re-emerged on the radar of global investors.

Performance across FX windows

The naira recorded gains across both official and parallel markets during the review period. At the official window, the currency appreciated to close at N1,368.5/$, while in the parallel market it traded around N1,370/$.

Though the final week of February saw the naira weaken from N1,353.5/$ to N1,368.5/$, analysts describe the movement as routine market correction rather than structural weakness.

Market participants attribute the resilience largely to improved dollar supply conditions, driven by sustained CBN liquidity injections and rising non-oil inflows.

Managing Director of Afrinvest West Africa Limited, Ike Chioke, noted in a communication to investors that the naira is expected to trade within a similar band in the short to medium term, supported by bullish fundamentals and enhanced domestic refining activity.

Oil prices and external dynamics

Global oil prices also provided moderate support. Brent crude advanced to about $72 per barrel during the week, buoyed by geopolitical tensions in the Middle East that heightened fears of potential supply disruptions through the Strait of Hormuz. As of yesterday, Brent Crude has surged to $79.39 per barrel as the Middle East crisis persists.

Higher oil prices typically strengthen Nigeria’s external earnings profile, although analysts caution that reserves growth in recent months appears increasingly diversified beyond crude receipts.

Dr. Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Public Enterprise (CPPE), observed that reserve growth is not solely oil-driven but also supported by foreign direct investment, portfolio flows, diaspora remittances and non-oil exports.

According to CBN data, workers’ remittances reached $15.466 billion in the first nine months of 2025, underscoring the growing importance of diaspora inflows in strengthening the balance of payments.

Inflation decline

Macro stability has been reinforced by easing inflationary pressures. Headline inflation fell to 15.1 percent in January 2026, marking the eleventh consecutive month of decline and a sharp drop from 27.61 percent recorded in January 2025.

The moderation in inflation allowed the CBN’s Monetary Policy Committee at its 304th meeting to reduce the Monetary Policy Rate by 50 basis points to 26.5 percent, while retaining the Cash Reserve Ratio and Liquidity Ratio at existing levels.

The calibrated easing signaled confidence that disinflation was gaining traction, while maintaining a disciplined stance to anchor expectations.

Cardoso emphasized during the CBN’s Monetary Policy Forum themed “Managing the Disinflation Process” that sustaining price stability remains the central bank’s core mandate. He reiterated plans to transition toward an inflation-targeting framework and ensure monetary policy remains forward-looking and resilient.

Eurobond success signals investor confidence

Nigeria’s improving macro narrative was further reinforced by its successful return to the international capital markets with a $2.25 billion dual-tranche Eurobond issuance.

The 10-year bond maturing in 2036 and the 20-year bond due in 2046 attracted over $13 billion in orders — the largest orderbook in the country’s history. The transaction demonstrated renewed investor appetite for Nigerian assets.

Director-General of the Debt Management Office (DMO), Patience Oniha, described the issuance as consistent with the agency’s strategy of diversifying funding sources while supporting the government’s growth agenda.

Strong participation from fund managers, pension funds, banks and institutional investors across multiple jurisdictions reflected improved perceptions of Nigeria’s policy credibility.

Financial Derivatives Company Managing Director, Bismarck Rewane, added an analytical dimension to the conversation, estimating the naira’s purchasing power parity (PPP) fair value at around 1,257/$.

Based on this assessment, the naira remains undervalued by roughly 11 percent, suggesting room for further appreciation if reforms persist and external balances remain strong.

Rewane noted that currencies tend to converge toward their PPP-implied values over a five-year horizon, reinforcing the argument that the current exchange rate may not fully reflect underlying fundamentals.

The CBN has also introduced new minimum capital requirements for banks, effective March 2026, aimed at strengthening the financial system’s resilience and positioning Nigeria for a $1 trillion economy aspiration.

By reinforcing banking sector stability and limiting excessive FX interventions, policymakers hope to avoid the cyclical vulnerabilities that have historically undermined election-year macro stability.

Analysts caution, however, that sustaining reserve growth through an election cycle will require fiscal discipline and consistent FX reform implementation. Historically, election periods in Nigeria have been associated with heightened policy uncertainty and capital flow volatility.

Outlook 

For now, the convergence of stronger reserves, moderating inflation, renewed investor confidence and disciplined monetary management appears to be supporting the naira’s recovery.

 At N1,368/$, the currency has posted back-to-back months of improvement relative to its January close of N1,391/$ and its January opening of N1,431/$. The steady rebuilding of reserves from roughly $44.8 billion in late December 2025 to nearly $50 billion within two months underscores the pace of external sector recovery.

Yet risks remain. Global oil price volatility, geopolitical tensions, capital flow reversals and domestic political dynamics could test the durability of recent gains.

The challenge for policymakers will be balancing exchange rate stability with market flexibility — allowing the naira to find its equilibrium without resorting to heavy-handed interventions that could deplete reserves.

Still, the broader narrative has shifted meaningfully from crisis management to cautious consolidation.

If current trends persist and reserves breach the $51 billion mark as projected, Nigeria may solidify its external buffers at levels unseen in over a decade, offering the naira a stronger foundation than at any point since the reform cycle began.