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Naira
Naira notes

Against widespread expectations, the Nigerian naira has posted surprise gains in both official and parallel foreign exchange markets, even as the country’s external reserves continue to shrink and global oil prices remain volatile.

According to data from the Central Bank of Nigeria (CBN), Nigeria’s foreign reserves have declined by 8.8 percent year-to-date—dropping from $40.88 billion at the start of 2025 to $37.28 billion as of July 8. Meanwhile, Bonny Light crude, the country’s major export grade, fell by 14.5 percent in the first quarter, from $80.76 per barrel in January to $69.07 in April. As of the latest figures, it hovered around $78.62 per barrel.

Despite this dip in forex earnings and a sluggish oil market, the naira has appreciated. At the official market, it gained 1.4 percent, exchanging at ₦1,520.74 per U.S. dollar as of Wednesday, compared to ₦1,541.36 in early January. In the parallel market, the local currency gained even more ground—appreciating by 7 percent from ₦1,660 to ₦1,550 within the same period.

What’s Driving the Gains?

Experts say the surprise performance of the naira can be attributed to a mix of declining dollar demand, cautious consumer behavior, and key reforms introduced by the CBN.

Ayokunle Olubunmi, Head of Financial Institutions Ratings at Agusto & Co, said the high cost of foreign exchange has discouraged Nigerians from leisure travel and luxury spending.

“The elevated exchange rate has made international vacations far more expensive, with family trips now costing up to ₦20 million—well beyond the reach of many Nigerians,” he noted.

This reduced demand is a sharp contrast to previous years, when summer travel and religious pilgrimages drove up dollar requests.

Funmi Adebowale, Head of Research at Parthian Partners, pointed to broader demand- and supply-side dynamics.

“On the demand side, household incomes remain under pressure, leading to more cautious spending and a scaling back of discretionary expenses, including international travel,” she said.

Even the usually busy Hajj season appeared subdued this year, with fewer adverts and limited travel activity.

On the supply side, Adebowale observed an improvement in foreign portfolio inflows, spurred by Nigeria’s ongoing economic reforms and increased transparency in the FX market.

“Investor confidence has strengthened on the back of Nigeria’s economic reforms, particularly those promoting transparency and liberalisation,” she added.

The Role of Reforms

Analysts also credit the naira’s resilience to the CBN’s foreign exchange market unification policy, which has narrowed the gap between the official and parallel market rates and reduced speculative arbitrage.

“What we’re seeing now is a more genuine and transparent demand for dollars,” Olubunmi said.
“The arbitrage that fuelled spurious demand in the past has been mostly eliminated.”

A Window of Stability

Though oil production also dipped slightly—falling from 1.54 million barrels per day in January to 1.49 million in April—experts believe Nigeria’s foreign exchange market may have entered a phase of relative calm, at least in the short term.

Still, they caution that the naira’s stability could be tested if oil prices continue to fall, reserves keep dwindling, or reform momentum slows.

In the meantime, the Central Bank appears to be gaining some ground in its battle to stabilize the naira, using a mix of market discipline, tighter forex controls, and confidence-building reforms to hold the line.

The coming months, particularly the close of Q3 and Q4, will test whether this trend can be sustained—or if structural weaknesses in the economy will resurface once again.

 

[Businessday]

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