Similar to an early 2024 spike eventually halted by foreign speculators selling out, the naira began the year with its most significant advance in 13 years. However, the factors at work this time suggest that the plot might develop differently.
According to TNC data, the naira has strengthened 9% since December 2024, rising from N1,662/$ on December 2 to N1,509/$ on February 13. This is the biggest gain among African currencies.
It gained 4 percent (N63.14) in January alone, reaching a seven-month high of N1,478.22/$. The last time the currency’s value increased in January was in 2012.
The naira’s strength in the parallel market has persisted even though the surge has somewhat slowed in February. The currency stabilized at N1,500/$, having increased from N1,620/$ at the beginning of the month to N1,545/$.
Reminiscent or a fresh start?
The gains were brief the last time the naira had such a rapid jump. Due to a surge in diaspora remittances and foreign portfolio inflows (FPIs), the currency rose from N1,600/$ to N1,300/$ in March 2024. In just a few weeks, the naira went from being the worst-performing currency in the world to becoming the best-performing one.
However, fissures in the FX market resurfaced as dollar inflows slowed. In addition to wiping out its gains, the naira dropped to a much lower N1,660/$ by July.
Market insiders blamed the steep turnaround on foreign speculators taking profits and a drop in the dollar supply. Many had locked in gains by entering the market at N1,600/$ and leaving when the currency fell to N1,300/$. After the CBN changed interest rates to reflect inflation, investors in Nigerian bonds got even greater profits when they sold.
The naira’s controlled performance in February suggests that the CBN is adopting a more methodical approach to avoid history repeating itself.
Why is the Naira rallying?
Improved FX supply in the official market, which results from CBN changes meant to increase transparency and investor confidence, is a major factor in the naira’s comeback. Most analysts predict that the currency will mostly stay unchanged in 2025.
The Electronic Foreign Exchange Matching System (BMatch), implemented in December 2024, is one of the major policy changes attributed to the naira’s recovery. By enabling approved dealers to anonymously put orders into a central limit order book through Bloomberg’s BMatch system, this CBN-backed tool ensures improved transparency and effective price discovery in the foreign exchange market.
The method has facilitated the management of exchange rate swings by lowering market distortions and providing the CBN with more monitoring.
According to Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), clearer information on supply and demand has decreased information asymmetry and made demand more realistic.
The Nigeria Foreign Exchange Code (FX Code), introduced by the CBN in January 2025, represents yet another significant reform. It lays out guidelines for moral behaviour, governance, execution, information exchange, risk management, and settlement procedures in the FX market.
Investor trust has increased due to these reforms, which bring Nigeria’s FX market into line with international best practices.
To maintain stability and prevent the parallel market from undermining official market pricing, the CBN has extended its $25,000 weekly sales to BDC operators through May 2025.
Data on net reserves will impact investor mood.
Nigeria’s external reserves decreased to $39.4 billion in January due to large outflows, including the repayment of the country’s COVID-19 IMF facility and CBN interventions in the foreign exchange market, notwithstanding these measures.
The CBN’s proposal to begin releasing statistics on net external reserves, which aims to allay long-standing worries among international investors regarding Nigeria’s true foreign exchange liquidity, could be a game-changer.
“At the moment, Nigeria only releases a 30-day moving average of gross reserves,” Okunrinboye stated. “As investors reevaluate Nigeria’s foreign exchange position, the introduction of net reserves figures may increase transparency but also cause market volatility.”
In light of the naira’s unprecedented position, the upcoming months will determine whether the rise is a permanent phenomenon or a fad.
