Naira Is Stabilising: Exchange Rate Hits N1,493/$ at Official Market, N1,610/$ in Parallel Market

The Naira is showing signs of recovery and stability, with key improvements recorded in both the official and parallel markets. The exchange rate at the  official market has appreciated to N1,493/$, while the parallel market rate now stands at N1,610/$, improving from N1,627/$ earlier in the week. These developments reflect the impact of foreign exchange (FX) reforms spearheaded by Central Bank Governor Olayemi Cardoso, who recently affirmed that the Naira is now trading at its “real value.”

 

Cardoso Says CBN FX Reforms Attracting Investors

Governor Cardoso has underscored the importance of a market-determined exchange rate in rebuilding confidence among both domestic and international investors. His administration has prioritized reforms that aim to close the gap between official and parallel market rates by increasing forex supply and removing market distortions. Cardoso stated, “The changes we have implemented are already yielding positive results, as investors are now recognizing that Nigeria is taking credible steps toward economic stabilization.”

These policy shifts have resulted in higher inflows of foreign capital, particularly through non-oil exports and remittances, further strengthening the Naira. Analysts believe that the recent appreciation in the parallel market indicates growing market confidence in the effectiveness of these measures.

Investor Sentiment: “Solid Ground for the Naira”

A recent analysis published by Arbiterz indicates that foreign investors may be reassessing their stance on Nigeria’s currency stability. Danelee Masia, Deutsche Bank’s chief economist for South Africa and Sub-Saharan Africa, noted that there is growing confidence that the Naira has found “solid ground.” According to Masia, investors are beginning to recognize the credibility of Nigeria’s new forex policies, which are reducing arbitrage opportunities and bringing the official and parallel market rates closer together.

This improved sentiment is likely to attract increased capital inflows, as foreign investors gain greater confidence in the sustainability of these reforms. Analysts agree that Nigeria’s progress in reducing distortions in the forex market is a critical factor in attracting long-term foreign direct investment (FDI).

 

Corporate Performance: Airtel Africa Sees Boost from Naira Stability

The benefits of a more stable exchange rate are already evident in corporate earnings. Airtel Africa, a leading telecom operator, reported a $248 million profit after tax for the nine months ending December 2024. The company attributed part of this performance to the Naira’s recent gains, which have reduced the cost of servicing its dollar-denominated debts.

Improved forex liquidity has also allowed Airtel to more effectively convert local revenues to U.S. dollars, easing financial pressures. This demonstrates how exchange rate stability can support businesses with substantial foreign currency exposure.

Economists’ View on the Naira Exchange Rate

Bismarck Rewane, Managing Director of Financial Derivatives Company, forecasts that the Naira will stabilize at around N1,555/$, attributing this to ongoing foreign exchange reforms aimed at increasing liquidity and unifying exchange rates. Rewane stresses that higher inflows from remittances and export earnings will play a crucial role in reducing currency volatility. However, he cautions that long-term stability hinges on the government’s ability to maintain consistent policies and strengthen key economic fundamentals such as inflation control and forex reserves.

Adding to this, Dr. Ogho Okiti, CEO of BusinessDay Media, notes that the Naira’s stability will depend heavily on structural reforms aimed at diversifying the economy. He emphasizes the importance of reducing Nigeria’s reliance on dollar-driven imports by promoting local production and industrial development. Okiti also advocates for a balanced approach to fiscal and monetary policies, including interest rate adjustments and inflation management, to create a conducive environment for sustained currency stability. Together, these economists agree that boosting forex supply, reducing dollar demand, and maintaining policy credibility are key to the Naira’s long-term stability.

Dr. Ayo Teriba highlights the need to expand Nigeria’s forex supply through non-oil exports and foreign direct investment. He had emphasized that policy transparency and improved forex market efficiency, including the alignment of official and parallel market rates, are critical to restoring investor confidence and minimizing arbitrage opportunities. According to Teriba, building strong foreign reserves is essential to shielding the Naira from external shocks and sustaining currency stability.

Future Prospects for the Naira

Despite these gains, challenges persist. High demand for dollars from sectors like fuel imports and infrastructure development continues to exert pressure on forex reserves. Global factors, including U.S. interest rate hikes and potential capital outflows, may also pose risks to Nigeria’s forex stability.

However, with sustained reforms and increased investor confidence, Nigeria could maintain the Naira’s upward trajectory. The credibility of the new forex policies has already begun to restore trust among both local and foreign stakeholders, creating a more favourable environment for long-term growth.

Policy Impact: Aligning Budget Projections with Market Realities

The Nigerian government’s 2025 budget is based on an exchange rate projection of N1,500/$, which now appears achievable due to ongoing currency reforms. In previous years, budgetary exchange rate projections often diverged significantly from market realities, leading to unforeseen fiscal challenges. The disconnect was largely driven by sharp fluctuations in forex demand for critical imports like fuel and infrastructure.

However, with more transparent forex policies and improved liquidity, the gap between projected and actual rates is narrowing. This alignment is crucial for fiscal stability, helping the government better manage budget deficits.

 

Subscribe to Notifications