Naira rebounds despite no FX help, as confidence holds

DDM News

The Nigerian naira recorded a surprising rebound last week, appreciating against the US dollar despite no direct intervention from the Central Bank of Nigeria (CBN).

Diaspora Digital Media (DDM) gathered that the local currency strengthened from ₦1,553 to close at ₦1,549.35 per dollar in the official market.

This rise occurred even as demand for dollars exceeded supply, putting pressure on foreign exchange settlements.

During the week’s trading, the naira touched an intraday low of ₦1,537 and a high of ₦1,570, showing volatility yet ending firmer.

At the same time, Nigeria’s external reserves dropped for the fourth consecutive week, losing $232.05 million to settle at $38.05 billion.

Despite shrinking reserves, forward contracts for the naira showed continued strength, supported by renewed investor interest.

According to financial analysts at Cordros Capital Limited, the 1-month naira forward contract appreciated by 1.4% to ₦1,583.16/USD.

The 3-month contract rose by 2.0% to ₦1,642.65/USD, the 6-month jumped by 3.0% to ₦1,724.76/USD, and the 1-year forward increased by 4.8% to ₦1,887.05/USD.

Cordros attributed this upward trend to fresh inflows from Foreign Portfolio Investors (FPIs), who remain optimistic about Nigeria’s market potential.

This optimism has held steady despite external risks such as rising geopolitical tensions in the Middle East.

Analysts believe the CBN is now pursuing a cautious and reactive FX policy, choosing to step in only when absolutely necessary.

Zedcrest Research projects that the naira will likely trade within a narrow band of around ₦1,600 to the dollar through the second half of 2025.

However, they warned that the pressure on Nigeria’s foreign reserves could reduce the frequency of CBN interventions going forward.

According to Zedcrest, unmet demand in key sectors such as fuel imports, manufacturing, and banking could drive a wider gap between official and black market rates.

They estimated that the premium in the parallel market could exceed 5% if supply shortfalls persist.

Nigeria’s fiscal outlook also adds complications to monetary planning and exchange rate stability.

Crude oil prices, Nigeria’s major revenue source, are projected to remain between $60 and $65 per barrel, far below the government’s budget benchmark of $75.

Though the government is ramping up efforts to improve security in oil-producing regions and increase output to 1.7 million barrels daily, it still falls short of the official production target of 2.06 million barrels per day.

This production gap, coupled with lower global oil prices, could result in a budget shortfall of over $10 billion, roughly 30% of the country’s expected revenues.

The shortfall puts additional strain on the country’s ability to defend the naira through external reserves or fiscal buffers.

Economists say Nigeria must now pursue comprehensive reforms in foreign exchange governance and oil revenue management.

Without these reforms, the country risks deepening instability in both its currency markets and broader economic outlook.

Many experts believe that transparent FX market policies and the unification of multiple exchange rates could go a long way toward boosting long-term confidence.

They also advocate for strengthening domestic production to reduce overreliance on imports, which currently exerts massive pressure on the naira.

For now, the naira’s resilience, despite no direct CBN support, is being seen as a positive sign that investor sentiment remains relatively strong.

Still, experts caution that without consistent policy action, this rebound may be short-lived.

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