Market News

The naira rally continued last week following key policy changes at the Central Bank of Nigeria (CBN). In the parallel market, the naira appreciated to N1,540, and stabilized at N1,501/$1 in the Nigerian Foreign Exchange Market (NFEM), the official market. The continued naira gains have pushed FX speculators to post losses as they offload long-held dollar positions at cheaper rates, writes Assistant Editor, COLLINS NWEZE

For many people who understand the workings of the forex market, one of its biggest threat remains the activities of speculators. Such activities not only create panic and volatility in the market, but stifle investment into the domestic economy.

But of recent, the naira has been recording major gains across markets, pushing forex speculators to offload dollar holdings to guard against further loses.

The naira has sustained rally at both official and parallel markets, with the local currency, reaching its strongest level in nearly eight months. It closed at N1,540/$1 at the parallel market, and N1,500.41/$1 at the official market.

Analysts said FX speculators lost over N10 billion in current naira rally and will record more losses as the greenback holders dump it in open market.

One forex dealer, said he offloaded dollar stockpiled for months, over fears of losing more funds.

“A stabilizing naira is good for everyone stabilizing at both the official markets, but sad over capital loses. This is not the time to hoard dollar because naira is fast finding its feet,” Michael Amos, FX trader based in Mushin Lagos. 

According to Bureau De Change operators in Wuse Zone 4, Abuja, naira rally has made it difficult for speculators to make new purchases.

One of the traders Aminu Bakori said that he was surprised that the naira could make such recovery within a short period.

He said the CBN’s decision to extend $25,000 weekly sale to Bureaux De Change (BDCs) at the Nigeria Foreign Exchange Market (NFEM) by four months is also impacting positively on the naira.

He said the sale of dollars to BDCs at the official market rate was to enable the operators meet rising demand for foreign exchange.

 Asked what he thought was responsible for the positive turn in the fortunes of the Naira, Bakori said: “The CBN recently reminded the general public, especially travelers of the continued availability of personal travel allowance and business travel allowance from their banks to meet their personal and business travel requirements”.

Continuing, he said the apex bank promised that all legitimate and eligible foreign exchange transactions are expected to be complete in the NFEM, at the market determined exchange rate.

“The CBN reaffirmed its commitment to a fully functional foreign exchange market as it continues to provide liquidity when necessary to manage price volatility which brought positive feedback into the market,” he said.

Other FX operators said the era of forex speculation and distortions in the domestic foreign exchange market came to end with the ongoing implementation of FX Code.

Analysts advised foreign exchange (Forex) buyers to resist the urge of succumbing to the speculative activities of some players in the market to save the naira.

President, Assciation of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, said he believed the apex bank remained committed to resolving the foreign exchange issues confronting the nation and as such has been working to manage both the demand and supply side challenges.

While admitting that there was huge demand pressure for foreign exchange to meet the needs of manufacturers as well as those for the payment of tuition, medical fees and other invisibles, he added that the monetary authority was strategizing to help Nigeria earn more stable and sustainable inflows of foreign exchange in the face of dwindling inflows from the oil sector.

Specifically, he noted that recent initiatives undertaken by the Bank such as the FX code policy, Electronic Foreign Exchange Matching System (EFEMS), had helped to increase foreign exchange inflow to the country.

The EFEMS was meant to check forex market distortions, eliminate speculative activities and instill transparency. The EFEMS, which is commonplace in developed and developing markets offers real-time information on currency rates, trading volumes, and market activity.

He urged Nigerians to play their role by adjusting their consumption patterns, looking inwards and finding innovative solutions to the country’s challenges.

He submitted that Monetary policy alone could not bear all the burden of the expected adjustments needed to manage the challenges around Nigeria’s foreign exchange.

He attributed the ongoing rebound of the naira against dollar and other world currencies to the CBN’s policies.

Gwadabe hinged the naira rally to the newly implemented Foreign Exchange (FX) Code, rising investors confidence, and policies supporting more dollar inflows through diaspora remittances.

He backed the apex bank’s position that the FX Code is comprehensively addressing various aspects of market conduct and practice, it is not intended to be exhaustive.

He said the policy authorises the CBN to establish and enforce directives regarding the standards for financial institutions under which FX deals are to be conducted.

Gwadabe said the code will further entrench transparency and accountability in the FX market, and continually sustain naira rally.

He also backed CBN’s position that all institutions engaged in the foreign exchange market must also provide the CBN with a detailed implementation plan outlining how they intend to achieve full compliance with the FX Code.

These plans are expected to be formally approved and signed by the institution’s board of directors, and it must be accompanied by relevant extracts from the board meeting where the plan was reviewed and endorsed.

The local currency was battered in 2024 after it was devalued, leading to an over 40 per cent depreciation.

Experts attributed previous naira’s depreciation to high inflation but remained confident that better days are ahead, as the CBN takes strategic steps to curb inflation and strengthen the naira.

More views from stakeholders

In a report, CEO of Comercio Partners Capital, Stephen Osho, said that he expects the naira to appreciate further in the future. He attributed this optimism to several factors, including the clarity provided by the CBN regarding the clearance of foreign exchange (FX) backlogs.

“This has been one of the challenges we’ve faced in terms of supply shortages,” he explained.

Osho noted that in recent times, there has been an increase in FX inflows, improving liquidity in the market. He also pointed to the CBN’s focus on transparency, liquidity, and price discovery, all of which have contributed to this improvement.

Comercio Partners, in its 2025 macroeconomic outlook, highlighted that the rebasing of Nigeria’s Consumer Price Index (CPI) to 2024 would also create statistical effects that could lower inflation figures.

According to Ifeanyi Ubah, head of investment research and global macro strategist, “We expect headline inflation to decrease to around 15 percent in the first half of 2025, indicating a gradual return to economic stability.”

The report also emphasised the importance of local refining capacity expansion, particularly with the launch of the Dangote Refinery. This development is expected to reduce the impact of exchange rate fluctuations on energy prices. By relying more on domestically refined petroleum, Nigeria is likely to see a reduction in energy price volatility. This, combined with a more stable exchange rate, is expected to lower production and transportation costs, creating a positive ripple effect throughout the broader economy.

Managing Director, Afrinvest West Africa Limited, Ike Chioke, projected a sustained positive naira performance this month, supported by CBN’s efforts at entrenching transparency in market operations. “In this new month, we expect the naira to remain on a positive trajectory bolstered by CBN’s effort at currency stability,” he said in emailed note to investors.                                     

The naira rally was also driven by inflows from Foreign Portfolio Investors (FPIs), substantial contributions from International Oil Companies (IOCs), and the CBN’s $18.40 million intervention to authorised dealers.

Other analysts also mentioned the renewed interest of Foreign Portfolio Investors (FPIs) in the FX market—driven by improved market confidence, a more efficient FX framework, and strengthening macroeconomic conditions—alongside the CBN’s sustained market interventions, is expected to continually support naira stability.

CEO, Countryside Markets Limited, Stevens Michael, said: “For me,  the whole idea is just to ensure that there is a lot more sanity in the foreign exchange market because those characters have really created a whole lot of problems over the years in the foreign exchange market,”

“I think that is what the CBN is trying to do and the more we’re able to sanitise the markets, I think the more stability it will achieve in the foreign exchange market,” he said.

The CBN has stated that while every effort has been made to ensure that the FX Code comprehensively addresses various aspects of market conduct and practice, it is not intended to be exhaustive.

Governor Cardoso also noted that the journey towards market reform is already yielding results. He stated, “The year 2024 was marked by structural reforms that sought to return the naira to a freely determined market price and ease volatility as several distortions were removed from the market.”

Beyond the foreign exchange market, the FX Code forms part of the CBN’s renewed focus on compliance across the financial sector. Its six guiding principles, alongside 52 sub-principles, were designed to become the benchmark for conduct across all participating institutions.

Domestic, foreign investors eye economy

A member of the Central Bank of Nigeria (CBN)-led Monetary Policy Committee (MPC), Bala Bello, listed key indicators that have overtime, kept domestic and domestic investors attracted to the domestic economy.

In his personal statement during the last MPC meeting held in Abuja, he said the external reserves position have grown remarkably to $40.88 billion as of 21st November 2024 from $40.06 billion at end-October 2024.

The upsurge in reserves levels, he said strengthens the needed buffer to mitigate unforeseen risks and reinforces the importance of ongoing efforts at sustaining improved foreign exchange supply.

Bello said the rising reserves position, alongside the relatively stable exchange rate, would enhance Nigeria’s position as an attractive investment destination.

He maintained that the resilience of the domestic economy, bolstered by a strong financial system with robust soundness indicators, instils confidence in the economic structure.

“Major prudential ratios, such as capital adequacy, liquidity, and Non-Performing Loans ratios, were within prudential limits, reflecting proactive regulatory oversight and strong industry risk management practices. Significant credit was extended to growth-enhancing sectors such as agriculture, manufacturing and general commerce, as well as individuals and households,” he said.

According the MPC member, this credit played a crucial role in stimulating economic activities and supporting output performance, emphasizing the role of financial institutions in the economy.

He disclosed that the results of stress tests showed that bank’s solvency and liquidity ratios remained resilient in scenarios of potential severe macroeconomic shocks. Continued vigilance is, however, required to ensure that the banking system remains strong and stable amid lingering risks.

He added that everyone has a role to play in this, and our collective vigilance is crucial for the stability of our financial system.

Continuing, he said that notwithstanding, Nigeria’s Real Gross Domestic Product (GDP) has maintained a positive trajectory, with a growth rate of 3.46 per cent in the third quarter of 2024, compared with 3.19 and 2.54 per cent in the preceding and corresponding periods, respectively.

“This growth, driven by both the oil and non-oil sectors, with a notable contribution from the Services sector, is a testament to the resilience of our economy. The non-oil sector grew by 3.37 per cent in the third quarter, compared with 2.80 per cent in the second quarter, while the oil sector grew by 5.17 per cent (year-on-year), compared with 10.15 per cent in the preceding quarter,” he said.

Another MPC member, Aloysius Ordu, said CBN staff presentations show noteworthy green shoots since the era of tight money began.

“First, there has been a marked improvement in the current account balance. Q3 2024 data shows a surplus of US$6.29 billion vis-à-vis US$5.14 billion in Q2 2024; and the overall balance of payment position recorded a surplus of US$3.79 billion,” he said.

“Second, the external reserves stood at US$40.88 billion at end-October 2024, a remarkable 16.9 months of import cover. The exchange rate remained relatively stable for most of the second half of 2024, reflecting increased capital inflows on account of attractive yields,” he added.

On his part, another member of MPC, Bandele Amoo, said Nigeria’s Balance of Payments (BOP) position remained stable to support our external sector stability.

The BOP provisionally recorded a surplus in the 3rd Quarter of 2024 driven by positive balances in the current account and net asset acquisition positions.

The overall account positively stood at US$3.79 billion as at Q3 of 2024. Meanwhile, portfolio inflows remain high, recording a net inflow US$0.59 billion as at November 2024.

“The total foreign exchange flows through the economy stood at US$6,175 billion in September 2024 compared with $2,570.6 billion in August 2024. Furthermore, foreign reserves at the end of October 2024 stood at $39.68 billion, equivalent to several months of import cover”.

“External reserves is projected to further increase by year end due to expected reduction in import demand pressures arising from the full deregulation of the downstream oil sector, reduced petroleum products importation regime, increased inflows and other process management by the CBN,” he said.

Global inflation statistics

Earlier, CBN Governor, Olayemi Cardoso, said  global inflation is projected to decline to 3.5 percent in 2025, down from its peak of 9.4 percent in 2022.

Speaking during the last Chartered Institute of Bankers of Nigeria (CIBN) Bankers Dinner in Lagos, he said major central banks are gradually easing their monetary conditions and this shift is slowly reopening access to international capital markets for emerging economies. However, global growth remains subdued at 2.6 percent, hindered by geopolitical tensions, China’s economic slowdown, and growing trade fragmentation.

He said the Sub-Saharan Africa has seen modest growth of 3.6 per cent last year, while still lagging pre-pandemic levels.

“The effects of monetary tightening measures have helped to curb inflation in some key markets such as South Africa and Kenya but many countries are still grappling with double-digit inflation rates and high debt service burdens. These challenges constrain the resources available for critical investment in education, healthcare and infrastructure,” he said.

While food prices remain a key contributor to the uptick, the Monetary Policy Committee  members recently commended the efforts of the Federal Government for the improved security, especially in the North-East of the country, which would likely improve food production.

The committee members also noted the role of rising energy prices on the general price level due to its impact on factors of production. The recent increase in the price of Premium Motor Spirit (PMS) has also impacted the cost of production and distribution of food items and manufactured goods.

The committee members were optimistic that the full deregulation of the downstream sub-sector of the petroleum industry would eliminate scarcity and stabilise price levels in the short to medium term.