- The Nigerian naira rose 6.9 per cent year to date, closing at ₦1,347.78 to the dollar, marking one of its strongest levels in nearly two years
- The Central Bank of Nigeria allowed licensed Bureau de Change operators limited access to FX, helping narrow the gap between official and parallel markets
- Analysts warned that rising foreign portfolio inflows and strong carry trade returns increased the risk of investor exits later in the year
The Nigerian currency has strengthened sharply in recent weeks, buoyed by improved foreign-exchange liquidity, though rising foreign portfolio inflows may pose exit risks later in the year.
The Nigerian naira has risen to one of its strongest levels in nearly two years, reflecting improved liquidity in the official foreign-exchange market, according to a new macroeconomic update by CardinalStone.
The report noted that the naira has appreciated by 6.9 per cent year to date in the official market, closing at ₦1,347.78 to the dollar on Monday. The gains signal stronger liquidity conditions in the official window and reduced speculative pressure compared with previous periods of volatility.
Although the currency has firmed considerably, a gap between the official and parallel markets persists. The parallel market initially traded at a premium of approximately 5.7 per cent over the official rate, before narrowing to around 3.2 per cent following renewed foreign-exchange interventions by the Central Bank of Nigeria (CBN). CardinalStone said the narrowing spread suggests greater liquidity in the official market relative to the parallel segment.
In a further move to stabilise the market, the CBN last week permitted licensed Bureau de Change (BDC) operators to access foreign exchange through authorised dealers at prevailing market rates. Each BDC is allowed weekly purchases of up to $150,000, subject to strict know-your-customer requirements. Unused balances must be sold within 24 hours to prevent hoarding, while cash transactions are capped at 25 per cent of total FX trades and must be settled through licensed financial institutions.
With 82 licensed BDCs currently operating, potential supply to the segment could reach about $50m monthly. This remains significantly below the more than $1bn supplied monthly before the COVID-19 pandemic. However, the report said the disparity reflects “material improvements” in the FX market, which have reduced speculative demand and redirected most corporate FX needs to the official window.
On the foreign portfolio investment side, analysts warned that sustained currency strength could encourage profit-taking. Nigeria’s carry trade remains among the most attractive in emerging and frontier markets, with outstanding FPI positions estimated at between $12bn and $14bn.
Should the naira strengthen towards ₦1,200–₦1,250 per dollar from an assumed ₦1,500 entry point, investors could record currency gains exceeding 22 per cent. Such returns may heighten the risk of portfolio exits, particularly as election-related uncertainty builds later in the year.
Ahead of the CBN’s Monetary Policy Committee meeting, CardinalStone assigns a 60 per cent probability to the bank holding rates steady, citing concerns about excess liquidity, while leaving room for a modest 50–100 basis point cut.