The Nigerian currency, the Naira, witnessed significant fluctuations against the US dollar over the past weeks, indicating both challenges and opportunities within the nation’s foreign exchange market. The Central Bank of Nigeria (CBN) played a pivotal role, implementing various policies aimed at stabilizing the currency. This week, the Naira ended slightly lower, recording N1,500.7 against the dollar at the close of the foreign exchange market on February 21, 2025, after having previously traded at N1,500.5.
This decline marked the first drop for the Naira after it had shown some encouraging signs of stability. According to data from the CBN, the Naira lost N8.1 week-on-week against the dollar, closing at N1,508.6 previously. Conversely, it had strengthened by N60 compared to its exchange of N1,560 against the dollar earlier this month.
Factors contributing to this volatility include increased intervention by the CBN, foreign portfolio investor activity, and fluctuations within the oil market. AIICO Capital Limited noted the recent boosts from notable foreign exchange supply, driven by inputs from IOCs and the support from the CBN. The infusion of USD66.80 million from the CBN to authorized dealers aided the appreciation of the Naira to N1,501.08 per dollar by Friday.
The convergence of the Naira's value at around N1,500 across both official and parallel markets demonstrated the CBN's effectiveness at narrowing the gap, enhancing market efficiency and potentially reducing opportunities for currency speculation. Recent figures show trading within the N1,490 to N1,520 range, signifying strong demand for foreign currency.
Despite these advancements, experts like Prof. Uche Uwaleke suggested the need for continued structural changes to alleviate inflationary effects on the economy. “A stronger naira would positively impact inflation,” he stated, highlighting the gap between desired stability and the existing high exchange rates. Currently, the market trends suggest trying to aim for rates below N1,500 per dollar.
Recent CBN interventions have included the introduction of systems such as the BMatch electronic matching system to improve transparency and accountability within currency trading. This, alongside increased remittances and foreign investments, has improved liquidity—factors identified by Jimi Ogbobine from Agusto Consulting as instrumental for the current Naira stability.
Despite the challenges posed by declining external reserves, which have dipped by USD300.11 million to USD38.74 billion, analysts express cautious optimism. They note the continued upward trend of oil production, which now stands at approximately 1.54 million barrels per day, alongside favorable global oil prices. Maintaining this level of production and supporting stable oil pricing will be imperative for the Naira’s resilience going forward.
Looking at the psychological effects of the forex policies, analysts are also keeping watch over inflation rates, currently at 24.48 percent. Many scholars and economists are hopeful about the future direction of Nigeria’s economic policies, especially with the recent CBN decision to retain interest rates at 27.50 percent, which may stabilize other economic indicators as well.
Overall, as the Naira continues to navigate through this volatile climate, it reflects broader socioeconomic themes within Nigeria. It’s evident the CBN’s intervention strategies have yielded positive results, but long-term stability will call for sustained efforts and adaptability to the changing economic realities.