Market News

Nigeria’s foreign exchange (FX) reserves is expected to rise to $41 billion by year-end, marginally higher than what was recorded in 2024, with the naira sustaining its gains, CardinalStone said in its mid-year outlook.

The rise in the FX reserves is attributed to plans by the federal government to raise a combined $3.2 billion in the second half of the year to meet some of its fiscal priorities. Likely inflows from portfolio investors are expected to also support this projection.

“These proposed external borrowings, alongside other anticipated inflows, will likely boost the FX reserves to $41.00 billion by year-end, compared to $37.27 billion as of H1’25,” the Lagos-based research and investment firm said in its report.

A larger external reserve bodes well for the naira as the research firm sees the local currency maintaining the N1,550.00 — N1,635.00/$ bandwidth through the end of 2025.

Nigeria’s FX reserves has shed more than $3.5 billion year-to-date as the central bank paid off some $2 billion in external borrowings while regularly selling dollars to the market to ensure liquidity and naira stability amid global tensions.

According to analysts at CardinalSone Research, external shocks – both the tension in the Middle East and sweeping tariffs powered by US President Donald Trump – have led to FX outflows of $22.83 billion, as some investors shifted capital to the U.S. Treasuries and Gold.

This has seen the apex bank adopt a “discretionary FX framework”, selling a total sum of $4.72 billion in the presence of perceived market distortions.

CardinalStone stated that the CBN’s average monthly FX intervention came in at $786.58 million, materially lower than the $2.30 billion pre-COVID and $1.38 billion post-COVID levels previously used to defend the Naira at unsustainable levels, despite underlying macro weaknesses.

In a bid to tame inflation, lure in foreign capital and shore up the value of the naira, the monetary authorities have left key benchmark interest rates unchanged for two straight times after aggressively hiking lending rates by a cumulative 875 basis points to 27.5 percent.

The analysts see a headroom for a 50 to 100 basis points before the year ends, bringing relief to business owners grappling with high borrowing rates.

The combination of tighter monetary policy, rising external reserves, and improved FX management is helping to restore investor confidence, which had waned amid past currency instability.

However, the outlook remains sensitive to global oil prices, portfolio flows, and the pace of fiscal consolidation. Any shocks in these areas could pose downside risks to both reserves and currency stability.