Naira Appreciates as Market Liquidity Improves
Nigeria’s foreign exchange landscape recorded a significant improvement last week as the naira appreciates to ₦1,446.74 per dollar at the official market, reflecting a 0.69 per cent gain from the preceding week’s rate of ₦1,456.72/$.
The modest recovery comes after a period of heightened volatility in the FX market, offering new optimism for investors, businesses, and market participants.
Throughout the trading week, the naira consistently stayed below the ₦1,450/$ threshold at the Nigerian Autonomous Foreign Exchange Market (NAFEM) window—a performance analysts attribute to enhanced FX supply conditions, improved investor sentiment, and ongoing monetary reforms by the Central Bank of Nigeria (CBN).
On the parallel market, the currency also recorded slight stability, easing by 0.07 per cent to trade around ₦1,476/$, thereby maintaining a narrow spread between the official and street markets.
Market watchers describe this alignment as a positive indicator of restored confidence and stronger price discovery mechanisms.
Foreign Capital Inflows Hit $20.98bn, Boost Confidence
A major highlight driving market optimism is the revelation by the Governor of the CBN, Olayemi Cardoso, that Nigeria attracted $20.98bn in foreign capital inflows between January and October 2025.
This figure represents a 70 per cent rise compared with total inflows for the entire year of 2024, and a remarkable 428 per cent surge from the $3.9bn recorded in 2023.
Cardoso made the disclosure at the 60th Annual Bankers’ Dinner in Lagos, where he emphasized that the improved FX inflow reflects renewed investor confidence and the impact of wide-ranging reforms in Nigeria’s monetary and financial markets.
According to him, the combination of market-driven pricing, clearing of FX backlogs, and the establishment of the Nigerian Foreign Exchange Code has repositioned the FX ecosystem for transparency, discipline, and credibility.
Liquidity Improvements Sustain Gains as Naira Appreciates
In its weekly market commentary, Cowry Asset Management observed that while inflows were not significantly higher than previous weeks, the market benefited from “deeper, more balanced two-way interest,” resulting in improved liquidity and narrowing bid–offer spreads.
The firm explained that participants now exhibit greater confidence as the FX market settles into a stable pricing band supported by market-driven principles.
Cowry added that the Monetary Policy Committee’s reaffirmation of the willing-buyer-willing-seller framework reduced uncertainty and strengthened expectations for a more transparent and demand-led market.
Similarly, analysts at AIICO Capital highlighted that active participation by Foreign Portfolio Investors (FPIs) played a central role in the appreciation recorded last week.
According to the investment firm, FPIs sold substantial dollar positions, injecting much-needed liquidity and easing the demand pressure that had previously weighed down the naira.
They noted that “improved foreign currency supply from FPIs allowed the naira to appreciate by ₦9.98 per USD during the week, closing at ₦1,446.74/$ as USD availability outpaced demand across major FX benchmarks.”
Outlook: Potential Mild Pressure Despite Positive Indicators
Despite the positive trajectory, analysts warn that the naira may still face mild pressure in the coming days due to persistent FX demand and lingering structural challenges in the broader economy.
Cowry Asset Management forecasts that although market imbalances may influence short-term movement, Nigeria’s steadily increasing external reserves will provide a cushion.
The firm expects month-end inflows, calmer post-MPC conditions, and a more predictable trading environment to support short-term stability.
Price discovery, they noted, will remain largely market-driven as long as the CBN continues to avoid heavy intervention and sustains its commitment to reforms.
CBN Reforms Reshape FX Market
Reeling out the progress achieved under his leadership, Governor Cardoso stated that the FX market has undergone fundamental transformation over the past year.
He highlighted several milestones:
Full unification of exchange-rate windows, eliminating long-standing distortions
Clearing of multi-billion-dollar FX backlogs, restoring credibility
Introduction of the Nigerian Foreign Exchange Code, enhancing transparency and governance
Deployment of the Bloomberg BMatch Electronic FX Management System, enabling mandatory order submissions, real-time regulatory oversight, and improved price discovery
Cardoso stressed that these reforms have collectively restored discipline and reduced manipulation, adding that the naira now trades within a narrow, more stable range.
He also pointed out that the gap between official and parallel market rates has shrunk dramatically to under two per cent—down from over 60 per cent in previous years.
According to him, “The resurgence of foreign capital inflows is clear evidence that investor confidence is gradually being rebuilt.”
The improved performance of the naira, bolstered by rising capital inflows, increased liquidity, and ongoing regulatory reforms, marks a hopeful phase in Nigeria’s FX management efforts.
While challenges remain, analysts believe that sustained policy consistency, transparency, and market-driven principles will be essential in deepening stability and supporting long-term economic recovery.
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