Market News

After one of the most turbulent currency episodes in its history, Nigeria’s naira is beginning to find its footing again. The question now confronting policymakers is not merely whether the naira should become stronger but whether the nation should prioritise something far more important for economic growth, which is stability.

The debate over the value of the naira often focuses on strength, how close it can come to the symbolic threshold of N1,000 to the dollar. Yet the real issue for an economy like Nigeria’s is not necessarily a strong currency but a predictable one. For businesses, investors and households, a stable naira may achieve far more than a currency that swings between dramatic appreciation and sudden collapse.

Recent developments suggest that stability may finally be within reach. Nigeria’s foreign reserves have climbed to about $50.45 billion, the highest level in over a decade, while foreign portfolio inflows have surged significantly. Data from the National Bureau of Statistics show that portfolio inflows jumped by more than 225 per cent to $14.3 billion within the first nine months of 2025, accounting for the bulk of capital importation into the nation.

These developments are signs that confidence in Nigeria’s macroeconomic reforms is gradually returning. The naira itself has gained modest ground this year at the official foreign exchange window after the painful devaluation that followed the exchange rate reforms of 2023. That earlier adjustment, though controversial, corrected years of distortion that had artificially overvalued the currency and discouraged exports.

But the temptation now is to push the currency higher to demonstrate strength and reduce import costs. That approach would be misguided.

A predictable currency creates the foundation for economic planning. Businesses that depend on imported inputs, from manufacturers to pharmaceutical companies, need to forecast costs months ahead. When the exchange rate swings wildly, long-term planning becomes nearly impossible. Companies either reduce investment or build large risk premiums into their prices, both of which hurt consumers.

A stable naira, even if it remains relatively weak, allows businesses to plan production, manage inventory and set prices with greater certainty. It also improves the investment climate by assuring foreign investors that exchange rate risk will not suddenly wipe out their returns.

For a nation that urgently needs investment in infrastructure, manufacturing and technology, that predictability is invaluable.

Currency stability also plays a critical role in tackling inflation. Nigeria’s inflation crisis over the past two years has been driven largely by exchange rate dynamics. As the naira weakened sharply, the cost of imported goods, from fuel to food inputs, rose dramatically, feeding into higher consumer prices.

“When the exchange rate swings wildly, long-term planning becomes nearly impossible. Companies either reduce investment or build large risk premiums into their prices, both of which hurt consumers.”

While a sudden appreciation might reduce import costs temporarily, it could also reverse quickly if the central bank runs down foreign reserves trying to defend an unrealistic exchange rate. The result would be another painful cycle of depreciation and inflation.

Stability breaks that cycle; when the exchange rate becomes predictable, businesses adjust prices gradually rather than abruptly, and inflation expectations begin to moderate. Over time, that stability contributes to a more manageable price environment.

Another reason stability matters lies in Nigeria’s external balance. The naira devaluation of 2023, painful as it was, improved the nation’s competitiveness. Nigeria’s trade balance has moved into surplus, with an overall trade surplus of more than N19 trillion recorded in the first nine months of 2025.

A sharply stronger naira could undermine those gains by encouraging imports while making exports less competitive. Nigeria already suffers from a structural import dependence, particularly in refined petroleum products, machinery and industrial inputs. An overvalued currency would widen the trade deficit again and put renewed pressure on foreign reserves.

Maintaining a stable but competitive exchange rate helps Nigeria preserve its improved external balance while giving local industries breathing space to grow.

Perhaps most importantly, currency stability strengthens policy credibility. For years, Nigeria’s exchange rate regime was characterised by multiple windows, administrative controls and frequent interventions that distorted the market. The reforms that unified the foreign exchange market were meant to restore transparency and investor confidence.

That credibility must now be protected. If policymakers begin chasing a stronger naira through heavy interventions, investors may once again doubt the sustainability of the exchange rate framework. Confidence could evaporate just as quickly as it returned.

Instead, the CBN should focus on building the fundamentals that naturally support currency stability: stronger foreign reserves, increased non-oil exports, higher foreign direct investment and greater diaspora remittances.

These sources of foreign exchange are far more durable than speculative portfolio flows that can leave at the first sign of uncertainty.

In the long run, the real strength of the naira will not come from interventions in the foreign exchange market but from the productivity of Nigeria’s economy. A nation that exports more manufactured goods, processes its natural resources and attracts long-term investment will inevitably have a stronger currency.

Until that structural transformation takes place, stability should be the priority.