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Why naira may come under fresh pressure in H2 2025 - BUSINESSDAY
The naira may experience some level of pressure in the next six months due to an expected easing cycle by the monetary authorities and a seasonal demand for foreign exchange for summer overseas, according to Norrenberger, an advisory and asset management firm.
In its recently released economic outlook, the Abuja-based firm, noted that the renewed U.S. protectionist policies under President Donald Trump, including the reimposition of tariffs on certain countries, may lead to a stronger U.S. dollar, thereby exerting downward pressure on emerging market currencies like the naira.
“Key factors that could weigh on FX inflows in H2 include the anticipated monetary policy easing by the CBN, which may result in reduced FPl attraction,” Norrenberger wrote in its report titled ‘The Great Recalibration: From Shock to Calm’.
“Additionally, seasonal demand for foreign exchange is expected to rise, particularly due to summer travel and increased payments for foreign education, a period traditionally associated with pressure on the naira.”
The naira has remained largely stable for the first half of 2025 buoyed by both fiscal and monetary stimulus aimed at attracting long-term capital and eliminating arbitrage opportunities in the market.
Particularly, the Olayemi Cardoso-led monetary policy committee has remained hawkish, keeping benchmark interest rates at a record high after raising borrowing costs by a combined 875 basis points and left it unchanged even after meeting for three times this year.
The move, according to analysts, has yielded an influx of portfolio investors who are seeking to take advantage of the bumper yields of the country’s monetary instruments and in turn steady the naira from any major slide.
Portfolio investments into Africa’s top crude producer rose to $5.2 billion in the first three months of the year, accounting for about 90 percent of the total foreign investments into the country that hit $5.4 billion in the same period.
But as inflation decelerates for the fourth straight month, the central bank now has more clear signals to begin its easing cycle, a condition that could trigger a drop in portfolio inflows and potentially deal a blow to the naira rally.
The advisory firm expects softer inflation reading driven by the impact of a high base effect from the previous year, relative stability in the exchange rate, and some moderation in energy prices.
Also, the anticipated decline in interest rates is likely to ease cost pressures on consumer goods, while improved seasonal harvests could support a slowdown in food price inflation.
Norrenberger sees the MPC cutting rates by a cumulative 200 basis points for the six months ending December, 2025. That would bring lending rates to 25.5 percent. This move would lead to investment expansion, stimulate consumer spending and allow for quicker growth recovery.
“Barring any major external shocks, we anticipate that the CBN will likely implement at least two moderate rate cuts totaling around 200bps before the end of 2025,” the report stated.
“Such a move would reflect growing confidence in inflation containment efforts while also signaling support for broader economic recovery.”
Even as headwinds both domestic and external still persist, the naira, according to Norrenberger, is expected to trade within a relatively stable band of N1,500-N1,600 per USD in the near term, supported by ongoing reforms and market interventions aimed at improving confidence and liquidity in the FX market.
