Naira Strengthens Amid Forex Oversupply and Security Clampdown — CBN Policies, Investor Confidence Drive Stability

Currency traders have cited a significant oversupply of dollars in the Nigerian forex market, combined with the efforts of security agencies to curb speculation and hoarding, as key reasons behind the recent appreciation of the naira. The naira gained strength in July, appreciating from N1,580/$1 at the beginning of the month to N1,535/$1 by July 29. Analysts link this recovery to the Central Bank of Nigeria’s (CBN) consistent policy implementation and a broader crackdown on forex market malpractice by agencies like the EFCC and NFIU.

The CBN’s reforms—targeted at restoring investor confidence, stabilizing prices, and easing pressure on the naira—are beginning to yield results. These include enhanced fiscal buffers, increased foreign capital inflows, and a healthier balance of payments. Banks have lifted long-standing restrictions on the use of naira-funded debit cards abroad, while the convergence between the official and parallel markets has helped reduce arbitrage opportunities that previously destabilized the market.

According to Aminu Gwadebe, President of the Association of Bureau De Change Operators (ABCON), dollar supply now exceeds demand, helping to stabilize the exchange rate. He emphasized that the combination of CBN policy reforms, fiscal discipline, and the elimination of deficit financing via the “ways and means” borrowing have played a significant role. Collaborations between regulators, security agencies, and forex market operators were also credited for improving transparency and discouraging illegal currency speculation.

Currency speculators appear to be retreating amid increased supply and enforcement, with several BDC operators noting a decline in hoarding and speculative demand for dollars. Some traders believe positive global assessments, such as those by Fitch and Moody’s, have further buoyed confidence. The black market, once a hub for inflated dollar demand, is reportedly seeing lower premiums and improved parity with official rates.

Nigeria’s strengthened forex position has led to a rally in naira-denominated bonds, with Bloomberg ranking them top among 23 emerging markets, posting an 8.6% gain in July. Meanwhile, naira volatility has significantly declined, from 23% in December to 4.6% in July. The CBN has kept its benchmark rate steady at 27.5%, while inflation continues a three-month downward trend, currently at 22.2%. These developments suggest that Nigeria’s financial reforms are translating into tangible economic stability and growing global investor trust.

Source: Nairametrics