The naira has surged to its strongest level in nearly two years, trading at N1,347.78/$ in the official market, according to a macroeconomic update by financial advisory firm CardinalStone. The local currency has appreciated by 6.9 per cent year-to-date, reflecting improved liquidity in Nigeria’s official foreign exchange window. For many businesses and importers who have battled volatility in recent years, the strengthening currency offers a rare moment of relief.
Despite the gains in the official market, a gap remains between official and parallel market rates. The parallel market initially traded at a 5.7 per cent premium before narrowing to about 3.2 per cent, following renewed foreign exchange interventions by the Central Bank of Nigeria. Analysts say the shrinking spread suggests stronger liquidity in the official window and reduced speculative demand, signaling a more stable FX environment compared to previous periods.
Part of the recent stability stems from fresh measures introduced by the apex bank. Last week, the CBN allowed licensed Bureau de Change operators to access foreign exchange through authorised dealers at market rates, with a weekly cap of $150,000 per BDC and strict compliance requirements. Although the estimated monthly supply to the segment — about $50 million — is significantly lower than the over $1 billion supplied monthly before COVID-19, it has helped ease retail FX pressures and compress the parallel market premium.
However, analysts warn that the currency’s rally could carry risks. Nigeria’s carry trade remains attractive across emerging and frontier markets, drawing sizable foreign portfolio inflows estimated between $12 billion and $14 billion. If the naira strengthens further toward N1,200–N1,250/$, investors who entered around N1,500/$ could record substantial FX gains. Such windfalls may encourage profit-taking and potential capital exits, particularly as political uncertainties build ahead of general elections.
Attention now turns to the upcoming Monetary Policy Committee meeting of the CBN. While inflation is moderating and short-term rates are trending lower than the 27 per cent Monetary Policy Rate, the central bank has maintained a firm stance against excess liquidity. Analysts believe there is a 60 per cent probability that the CBN will hold rates steady to safeguard currency stability, though a modest 50–100 basis point cut remains possible. Forward market signals suggest the naira could weaken later in the year, with projections placing it between N1,350 and N1,450/$ in 2026 — underscoring that while today’s gains are encouraging, the road ahead may still test the currency’s resilience.
source: punch