The Central Bank of Nigeria (CBN) has been working diligently to stabilize the foreign exchange (forex) market, resulting in notable improvements in the Naira’s performance in early 2025. In the first two months of the year, the Naira appreciated and converged with the parallel market exchange rates, reaching N1,500 per dollar. This development marked a sharp contrast to the volatility and depreciation that plagued the previous year. Key measures from the CBN, including the payment of the $7 billion FX forward backlog and various restrictions on forex holdings and transactions, were instrumental in restoring orderliness and transparency in the market.
One of the significant changes was the implementation of the Bloomberg BMatch system, which improved forex market efficiency by automating trade matching and enhancing price discovery. Furthermore, the CBN introduced the Nigerian Foreign Exchange (FX) Code, based on global best practices, to ensure ethical conduct and transparency within the market. These efforts contributed to a positive shift, with the Naira’s exchange rate dropping below N1,500 in the parallel market for the first time in seven months. The alignment of the official and parallel market rates eliminated a destabilizing factor in the forex market and led to notable appreciation early in the year.
The CBN’s progress in stabilizing the forex market is now seen as a critical step toward addressing Nigeria’s high inflation. Governor Olayemi Cardoso emphasized that this newfound stability enables the CBN to target a reduction in inflation to single digits. The CBN’s actions, including improved investor confidence in the market and a more competitive currency, are expected to spur foreign investments, which will, in turn, help foster economic growth. Cardoso reassured that the CBN would continue to employ orthodox monetary policies and maintain vigilance to ensure that inflation declines from its current double-digit levels.
Central to sustaining these gains is effective coordination between the monetary and fiscal authorities. Cardoso stressed the importance of collaboration during a recent Monetary Policy Forum, which brought together stakeholders from both the private and public sectors. These discussions focused on fostering deeper and more regular dialogue between fiscal and monetary authorities to ensure that the positive trends in the forex market are not only maintained but improved. The CBN remains committed to working with other government bodies to ensure that the stability achieved thus far continues to benefit Nigeria’s economy.
SOURCE: VANGUARD