Naira Ends February Strong, Defying Pressure with Gains in Parallel Market

The Nigerian naira ended February 2025 with notable fluctuations in its performance across both the parallel and official markets. The currency saw an 8.5% month-on-month gain in the parallel market, closing at N1,490/$, while in the official market, it depreciated by 1.7%, settling at N1,500/$. Despite pressure from various economic factors, the naira showed resilience. A decline in foreign reserves, down 3.2% month-on-month to $38.46 billion, was partially attributed to the Central Bank of Nigeria’s (CBN) efforts to stabilize the naira, including the resumption of payments for outstanding forex backlogs.

Analysts have projected that the naira’s positive performance may continue into March 2025, driven by the CBN’s ongoing support through foreign currency supply to Bureau de Change operators and Deposit Money Banks. However, they warned that any unexpected market shocks could potentially derail this trend. Despite the challenges, the naira has exhibited mild strength in recent weeks, fluctuating around the N1,500/$ range in both market segments.

The challenges impacting the naira include a global dip in oil prices, with Nigeria’s Bonny Light crude dropping by 3.2%, which weakened dollar inflows into the country. This has directly impacted the nation’s foreign exchange reserves, which saw a $240 million decrease week-on-week. The reduced oil revenues and the pressure on foreign exchange liquidity remain a concern for the country’s economic stability. As oil prices continue to be volatile, experts warn that Nigeria’s foreign exchange challenges will persist, limiting the potential for sustained naira gains.

Looking ahead, analysts expect the CBN to intensify its efforts to stabilize the naira, including tightening liquidity and improving forex supply mechanisms. Despite the ongoing challenges such as high inflation rates, a mounting debt burden, and declining reserves, there is hope that the naira may continue to gain strength if the central bank’s interventions prove effective. However, experts caution that unless these structural issues are addressed, the naira’s long-term stability remains uncertain.

SOURCE: PUNCH