Market News

BY  Wasiu Alli 

The Central Bank of Nigeria (CBN) may begin to slow down the pace of absorbing inflows in net reserves to give a breather to the naira that has climbed to its highest in almost a month, potentially allowing the currency to end 2025 at N1,450/$.

This is according to a note by US-based financial institution, JPMorgan, emphasising that the published NFER data and the reconstitution of the state-owned oil company (NNPC) now puts Nigeria as “one of the best trades to hold within frontier local markets”.

“We maintain a bullish stance in Nigeria,” JPMorgan said. “Now that net reserves data have been published, the central bank might ease off aggressively absorbing inflows, which could result in USD/NGN moving moderately lower, declining to around 1450 by year-end.”

The NFER climbed to its highest levels in at least three years as measures implemented by the central bank to shore up its buffers are finally paying off.

According to the CBN, net reserves soared to $23 billion last year, rising by $19 billion within 12 months from $3.99 billion it stood in 2023. Gross reserves also rose to $40.9 billion in 2024 from $33.0 billion a year before.

Read also: Nigeria’s net reserves soars to 3-yr high as CBN’s policies pay off

“This, in our view, is why USD/NGN was under so much pressure last year and, going forward, should face less pressure as the central bank may ease off on the pace of net reserve accumulation.”

The New York-based bank noted that while the CBN didn’t disclose detailed data of its short and medium-term foreign liabilities, providing some insight into its net reserves is a “significant step in the right direction” and a commitment to a more “market-friendly approach to policy making.”

The reconstitution of the board of the Nigerian National Petroleum Company Limited (NNPC.Ltd) after President Bola Tinubu sacked former head Mele Kyari and replaced him with ex Shell MD Bayo Ojulari is a big step forward in the country’s agenda to boost output and enhance local refinery.

According to JPMorgan, a private sector-led NNPC would complement other oil reform efforts (e.g enacting the Petroleum Industry Act and removal of oil subsidies).

While it may not result in a sharp increase in oil production in the near term, it should result in improved transparency and better flow of oil dollars to the government (via the CBN), the top US bank said.

It noted that while the current account surplus remains large at $17.5 billion in 2024 negative errors also remain large and limit the extent of FX reserve accumulation.

The NNPC is once again charting a course towards an Initial Public Offering (IPO), signalling a renewed determination to tap into public markets.

These FX financing arrangements should boost FX liquidity in the near term. The state-owned oil company is said to be in the final stages of agreeing another medium-term FX financing arrangement, collateralised with future oil output.

“If these arrangements are finalized in the coming months, the NNPC could have up to US$9.5bn in new financing, which could be used to clear arrears owed for petrol imports and potentially contribute to FX reserve re-building.

“While this financing arrangement had appeared imminent a few weeks ago, it is unclear what impact the change in management at the NNPC would have on its timing.”