In a remarkable twist for Nigeria’s foreign exchange (FX) market, the naira has shown consistent improvement over the past 21 days, demonstrating significant resilience against the dollar. On February 22, 2025, the parallel market rate stood at N1,490 to $1, marking a notable shift from N1,620 at the beginning of the month. Similarly, the official market closed at N1,502 to $1, slightly higher than N1,477.9 to the dollar on January 31.
This surge has caught the attention of economic experts, who attribute the rise to a combination of effective government interventions and a broader, more favorable economic environment. As the exchange rate stabilizes, many are hoping this trend will continue, offering relief to Nigerians who have long grappled with high inflation and an unpredictable currency.
A Steady Recovery Amidst Struggles
The recent uptick in the naira’s value marks a sharp contrast to the downward spiral that characterized the currency’s performance for much of 2023 and 2024. In late 2024, Nigeria’s economy struggled with a volatile FX market, where the naira’s depreciation had resulted in widespread inflation, making imported goods unaffordable for many citizens.
For years, the black-market exchange rate in Nigeria often diverged significantly from the official rate, creating a gap that complicated everyday transactions for businesses and individuals. However, the current trend reflects a significant narrowing of this gap. Analysts credit this to the Central Bank of Nigeria’s (CBN) introduction of a series of reform measures that have provided much-needed stability.
Central Bank Reforms and the BMatch System
Prof. Uche Uwaleke, the President of the Capital Market Academics of Nigeria (CMAN), has been a vocal supporter of the Central Bank’s recent reforms. Speaking to THISDAY, he explained how these policies are directly contributing to the naira’s appreciation. Among the most important measures, according to Uwaleke, is the introduction of the BMatch electronic matching system, which facilitates more transparent forex transactions.
“The stability we are witnessing has a lot to do with some of the measures introduced by the Central Bank to enhance transparency in the forex market,” Uwaleke said. “Specifically, I’m referring to the BMatch system, which allows for better matching of buyers and sellers in the market, and the FX code of conduct, which holds financial institutions accountable.”
The BMatch system, alongside strict sanctions for non-compliance with forex conduct guidelines, has created a more disciplined market environment. Uwaleke added that these reforms are ensuring that the naira’s exchange rate reflects a more accurate value, and that currency flows into the market are better regulated.
Increased Foreign Investment and Oil Production Boost FX Liquidity
Alongside these domestic policy changes, a significant increase in foreign investment has played a pivotal role in the naira’s stabilization. The inflow of foreign portfolio investments (FPIs), driven by incentives for foreign investors and the relatively undervalued naira, has injected crucial liquidity into the forex market.
“The naira’s recent gains are largely on the back of improved supply inflows,” said Jimi Ogbobine, the Head of Agusto Consulting. “With the improved production of crude oil and the increased inflows of foreign portfolio investors, there has been a higher level of foreign currency inflow into the market.”
Nigeria’s oil sector, long considered the backbone of the country’s economy, has experienced a period of stable production. Oil production currently stands at 1.54 million barrels per day, a crucial factor in supporting the naira’s recent performance. Analysts agree that consistent oil production levels and favorable crude oil prices are critical to maintaining the gains the naira has made in recent weeks.
Ogbobine added that allowing Bureau de Change (BDC) operators access to the official forex market has further contributed to narrowing the gap between the parallel and official market rates, making the exchange rate system more efficient.
The Road Ahead: Will Naira’s Gains Hold?
While experts acknowledge the naira’s positive trajectory, many emphasize that the battle is far from over. In the face of persistent inflation, a stronger naira remains the primary goal. Although recent improvements have brought some respite to the FX market, the current exchange rate still hovers around N1,500 to the dollar, a level that many economists still consider high.
“What we desire is not just stability at a high exchange rate; we want the naira to appreciate,” said Prof. Uwaleke. “A stronger naira would have a positive impact on inflation. If the exchange rate stabilizes at N1,500 per dollar, it is still too high. The goal should be to bring it down further.”
For now, however, the outlook remains cautiously optimistic. The combination of government policies, increased oil production, and higher foreign exchange inflows has created a more balanced and stable market. Should these factors continue to align favorably, Nigeria may see the naira strengthen further, potentially easing the inflationary pressures that have weighed heavily on the population.
A Nation on the Edge of Economic Revival?
Nigeria’s battle to stabilize its currency has always been a closely watched affair, with international and domestic players eagerly analyzing the movements of the naira. The recent gains provide a glimmer of hope, signaling that the country’s economy may be on the brink of a new phase of recovery, particularly if it can maintain the momentum of these reforms.
While Nigerians have long yearned for a more predictable exchange rate, the path forward remains a balancing act. Policymakers will need to maintain favorable oil production levels, continue their engagement with international investors, and ensure that monetary policies stay aligned with economic goals.
