Market News

Analysts are sounding the alarm that the “hot money” which flooded Nigeria to capitalise on high interest rates may soon seek the exits window now provided by excessive naira gains.

While the Naira has shown remarkable resilience—trading at approximately N1,338.11 in the official market and bolstered by external reserves that have surged to a three-year high of $48.5 billion—this very strength is beginning to force foreign portfolio investors to rethink strategy.

For many foreign portfolio investors (FPIs), a rapidly appreciating currency provides the perfect window to lock-in their foreign exchange gains before potential volatility returns.

“We estimate outstanding FPI positioning at roughly $12 billion–$14 billion. Working with the assumption that a significant proportion of the 2025 inflows entered the Nigerian market at a rate of N1500/$, we estimate FX gains of 22.4 percent on currency alone if the Naira strengthens to the mid-point of N1,200/$ to N1,250/$.

“Such a gain could potentially increase the risk of foreign portfolio exits, especially considering a likely build-up in uncertainties ahead of the general elections,” CardinalStone Research analysts said in their recent note titled “Our thoughts on currency and monetary policy”.

They noted that Nigeria’s carry trade remains one of the most compelling across emerging markets and frontier markets, and continues to attract sizeable foreign portfolio inflows.

This creates a delicate balancing act for the Central Bank of Nigeria: sustaining a strong Naira while ensuring that a sudden exodus of short-term capital doesn’t deplete the very reserves that helped stabilise the currency in the first place.

“While seeing the Naira gain value is encouraging, we must be careful. We need a stable and predictable Naira more than a rapidly appreciating one. If the currency gains value too quickly, it could hurt the economy. At its current level, the naira supports our exports by keeping them attractive and competitive. Any sudden surge in value would make Nigerian goods more expensive for foreign buyers, a risk we cannot afford right now,” said Victor Ogiemwonyi, a retired investment banker.

“The foreign exchange market is now functional and transparent. The Nigerian FX market currently receives $8 billion in monthly inflows from diverse sources. While some dismiss this as mostly volatile “foreign portfolio investments” that are not stable, the consistency of these flows is creating stability”, he said.

Only $50m monthly dollar sales to 82 BDCs…

The Central Bank of Nigeria (CBN) recently announced that licensed BDCs can access FX through any authorised dealer at the prevailing exchange rate. The 82 licensed Bureau De Change (BDC) operators are permitted to buy up to $150,000 per week, subject to the necessary KYC and due diligence. This means that with 82 licensed BDCs, potential Central Bank of Nigeria (CBN) supply to the segment could amount to roughly $50 million per month.

BDCs are required to sell back any unutilised balances to the market within 24 hours to prevent hoarding. Additionally, the CBN stipulated that cash FX transactions are limited to a maximum of 25 percent of the transaction value, with the balance carried out via electronic means.

All transactions must flow through settlement accounts held with licensed financial institutions, according to the apex bank.

“The resumption of CBN supply has provided some relief to the retail market, with the parallel market premium over official now substantially narrowing,” CardinalStone Research analysts said.

Data from the Central Bank of Nigeria (CBN) showed the naira closed almost flat at the Nigerian Foreign Exchange Market, depreciating marginally by N2.15, or 0.16 percent to N1,338.11 per dollar, from N1,335.96 quoted on Tuesday. FX market participants reported the dollar trading as low as N1,328 during the session.

At the parallel market, also known as the black market, the local currency strengthened by N10 to close at N1,370 on Wednesday, representing a 0.73 percent gain from N1,380 recorded the previous day.

“In the past two weeks, the Naira has witnessed a steep appreciation in the official market (+6.9 percent year-to-date), reaching one of the strongest levels of the past 2 years. Despite the appreciation, the parallel market rate traded at a circa 5.7 percent premium to the official rate before the spread narrowed to 3.2 percent following the decision of the CBN to commence sales to BDCs”, CardinalStone Research further said.

“The divergence suggests that there was more liquidity in the official window than in the parallel market”, they added.

The naira maintained relative stability across foreign exchange (FX) markets on Wednesday as Nigeria’s external reserves rose above $48.5 billion, bolstering liquidity and narrowing the gap between official and parallel market rates.

The improvement has sharply narrowed the spread between the official and parallel market rates to about N32 on Wednesday, compared with N92 recorded last week, reflecting improving price convergence across segments.

Nigeria’s external reserves, which provide the CBN with firepower to support the currency, continued their steady ascent, rising to $48.50 billion as of February 17, 2026, according to figures published by the apex bank.

Risk of electioneering activities…

On what is the fundamental value of the naira, and if electioneering activities would shelve off some gains, the analysts said, “The six-month non-delivery forward suggests that the Naira could trade around N1,449.96/$ early in the second half (H2) of the year, with our base case range set at N1,350/$ to 1,450/$ for 2026:.

“These relatively benign currency outlooks are consistent with improving macro fundamentals, with Nigeria’s current account surplus expected to reach $17.7 billion in 2026. By this forecast, the current account surplus is set to touch its highest levels on record due to the impact of growing exports (mostly gas and refined products) and robust remittances. Additionally, the less encumbered FX reserves, which could reach $50 billion by the year end, should mitigate the risk of external shocks,” the added.