The naira has been appreciating steadily in the official foreign exchange (FX) market over the past few months, driven by significant dollar inflows, particularly from the Central Bank of Nigeria (CBN). Last week, the Nigerian Foreign Exchange Market (NFEM) recorded $1.19 billion in inflows, up from $1.10 billion the previous week. The CBN was responsible for 39.85% of these inflows, a notable increase from 14.29% in the prior week. Other sources include FPIs which accounted for 18.09% of total FX inflows, while non-bank corporates and exporters contributed 23.81% and 15.67%, respectively.

Authorised currency dealers quoted the highest dollar exchange rate at N1,537 on Monday, a slight improvement from N1,540 quoted the previous Friday. The lowest rate recorded was N1,527, stronger than the N1,535 from the previous week. In the parallel market, the naira also gained ground, trading between N1,570 and N1,575, compared to N1,580 the previous week.

While these recent gains may not represent a major turnaround, they reflect a continued and steady improvement in the naira's value. But what are the main drivers of this gradual strengthening? Is the recent stability likely to continue, and what are the implications for investors and the broader economy?

Market Trends and Economic Conditions

The naira’s recent performance can be viewed as part of a longer-term trend that reflects gradual improvement in the FX market. Historically, the naira has experienced significant fluctuations, often driven by global economic conditions, oil price volatility, and domestic policy shifts. In 2023, for instance, the naira faced serious depreciation mainly due to the CBN’s decision to allow the currency to float freely, leading to a sharp devaluation.

However, the recent appreciation of the naira can be attributed to the increased FX inflows, policy measures by the CBN, and growing confidence among FPIs. Key policy shifts include increased dollar supply to boost liquidity and the introduction of the B-match system, which matches forex demand with available supply more efficiently, reducing speculation and improving price discovery.

The CBN’s interventions, such as increasing dollar supply and enforcing FX regulations, have been critical in keeping the market stable. However, the long-term trajectory of the naira will depend on sustained FX inflows, effective macroeconomic policies, and external factors such as global oil prices, Nigeria’s oil production levels, U.S. monetary policy direction, and political risks, both domestic and international.

What a Stronger Naira Means for the Economy

A stronger naira signals improved liquidity in the FX market, which boosts investor confidence and attracts capital inflows. Stability in the currency can also create a favourable environment for business growth and encourage long-term investments in the Nigerian economy.

Foreign reserves have remained relatively stable, closing at $38.35 billion as of March 21, 2025, a 0.06% decrease from the previous week. Maintaining healthy reserves will be critical for sustaining exchange rate stability and meeting growing FX demand.

The CBN’s interventions, including a $360 million injection through authorized dealers last week, have helped cushion the effects of volatility and provide a buffer against excessive depreciation.

The naira’s stability is a positive indicator for investors, particularly those involved in foreign trade and portfolio investments. As the CBN continues to implement effective monetary policies, the likelihood of sustained currency strength increases. Compared to previous periods of extreme volatility, this trajectory suggests a more controlled exchange rate environment.

Looking Ahead

While the naira’s recent gains are encouraging, long-term stability will require consistent policy measures, sustained FX inflows, and disciplined economic management. For businesses and investors, this is an opportune moment to assess market conditions and strategically position themselves for the evolving economic landscape.

With expert insights and real-time market intelligence, PariVest offers tailored strategies for navigating Nigeria’s FX market. Stay ahead by making informed investment decisions and positioning yourself for a stable financial future.

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