The Nigerian Naira surged to its strongest level in the parallel market this year, bolstered by ongoing foreign exchange (FX) reforms introduced by the Central Bank of Nigeria (CBN).
On Tuesday, black-market sellers in Lagos quoted the naira at N1,520 per dollar, reflecting renewed confidence in the local currency following sustained policy interventions.
The appreciation comes amid a series of measures taken by the CBN to stabilize the forex market.
These include the sale of FX to Bureau De Change (BDC) operators, tightening regulations within the sector, and boosting liquidity in the official market.
The recent introduction of the Nigeria Foreign Exchange Code (FX Code), designed to enhance transparency and investor confidence, has further reinforced stability in the forex market.
Since its launch in Abuja, the FX Code has signalled a shift towards a more structured and accountable system, discouraging speculative trading and opaque market practices.
Despite initial volatility, the naira’s upward trajectory has been evident since the implementation of the FX Code.
Analysts note that traders have been offloading dollar holdings in response to the policy’s stricter guidelines and improved clarity in market operations.
The increased confidence has helped sustain the rally, with the naira closing at approximately N1,520 to the dollar on Tuesday.
However, despite recent gains, the naira has experienced significant depreciation over the past year.
The average exchange rate at the Nigerian Foreign Exchange Market (NFEM) depreciated by 5.86 per cent to N1,385.96 per US dollar in the second quarter of 2024, compared to N1,304.72 in the first quarter.
By the third quarter, the official exchange rate had further declined to N1,541.94 per dollar, while parallel market rates hovered around N1,705 per dollar.
The year 2024 saw several bold policy shifts by the CBN aimed at stabilizing the forex market. Governor Olayemi Cardoso consistently emphasized that the naira was undervalued and required genuine price discovery.
In response, the apex bank clamped down on forex speculation, removed the ±2.5 per cent cap on interbank FX transactions, and tasked the Economic and Financial Crimes Commission (EFCC) with curbing illegal forex dealings.
Notably, the revocation of 4,173 Bureau De Change (BDC) licenses in March 2024 marked a significant tightening of forex management, helping to rein in unregulated market activities.
Further interventions included restrictions on foreign currency collateral for naira loans and the formation of a remittance task force to boost inflows.
In the latter half of the year, the CBN raised capital requirements for BDC operators to N2bn, allowing a six-month compliance period. These moves were designed to improve liquidity and stabilize the currency, yet challenges persisted as the naira closed May at N1,485.99 per dollar before depreciating further to N1,611 per dollar in July.
The government also took steps to enhance forex liquidity by reintroducing Retail Dutch Auctions (RDAs) and issuing a $500m domestic dollar bond.
Additionally, a nine-month window was created for Nigerians to deposit undisclosed foreign currency in banks, aiming to improve forex inflows.
The CBN’s approval for banks to trade idle FX deposits, coupled with new trading guidelines—including a $100,000 minimum trade mandate—further contributed to efforts to stabilize the market.
Looking ahead, economic experts project further gains for the naira.
The Nigerian Economic Summit Group (NESG) recently forecasts an appreciation to an average exchange rate of N1,300 per dollar in 2025, contingent on continued policy reforms and increased foreign exchange earnings.
Improved crude oil sales, revitalized manufacturing, and enhanced agricultural productivity are expected to drive foreign exchange inflows, further strengthening the naira.
Chairman of NESG, Olaniyi Yusuf noted the steep depreciation of the official naira-to-dollar exchange rate by 41.4 per cent to close at N1,536.5 per US dollar in 2024.
He highlighted the Central Bank of Nigeria’s commitment to policies fostering price discovery and narrowing the gap between official and parallel market exchange rates.
Yusuf stated, “The optimal pathways to stabilisation policies envision a consolidation of monetary, fiscal, sectoral, social safety, trade, and regulatory frameworks, paving the way for the consolidation phase of the economic transformation roadmap in the next twelve months.”
NESG also projects Nigeria’s real GDP growth to reach 5.5 per cent in 2025, provided comprehensive economic stabilization measures are fully implemented.
The group highlights the importance of aligning fiscal and monetary policies, improving forex market stability, and curbing speculative trading to sustain these gains. Additionally, inflation is anticipated to decline to 24.7 per cent in 2025 due to improved macroeconomic stability and increased food production, which could alleviate supply-driven inflationary pressures.
CBN Governor Olayemi Cardoso said he remains optimistic about the naira’s future, attributing recent improvements to ongoing forex reforms. He noted that international money transfer operators (IMTOs) have seen significant inflows, reinforcing confidence in the currency.
While acknowledging the economic challenges of 2024, including dwindling forex reserves and declining oil production, Cardoso stressed that innovative policy interventions were already yielding positive outcomes.