The Nigerian naira has climbed to one of its strongest positions in almost two years, closing at N1,347.78/$ in the official market on Monday, according to a macroeconomic update by CardinalStone.
The report noted that the currency has appreciated by 6.9 per cent year-to-date in the official foreign exchange window, reflecting improved liquidity conditions and increased foreign portfolio inflows.
Despite the rally, a gap remains between the official and parallel markets. The parallel market initially traded at a 5.7 per cent premium before narrowing to around 3.2 per cent, following renewed foreign exchange interventions by the Central Bank of Nigeria (CBN).
CardinalStone attributed the narrowing spread to improved liquidity in the official window compared to the parallel market.
As part of efforts to stabilise the retail FX segment, the CBN recently allowed licensed Bureau de Change (BDC) operators to access foreign exchange through authorised dealers at prevailing market rates. Each BDC is permitted a weekly purchase limit of $150,000, subject to know-your-customer requirements. Operators are also required to sell unused balances within 24 hours to curb hoarding, while cash transactions are capped at 25 per cent of total FX trades, with settlements processed through licensed financial institutions.
With 82 licensed BDCs, potential monthly supply to the segment could reach approximately $50m — significantly lower than the over $1bn supplied monthly before the COVID-19 pandemic. According to the report, this reduction reflects structural improvements in the FX market, which have curtailed speculative demand and redirected most corporate FX needs to the official window.
While the renewed supply has eased pressure in the retail segment and compressed the parallel market premium, analysts cautioned that continued currency appreciation could prompt profit-taking among foreign investors.
“Nigeria’s carry trade remains one of the most compelling across emerging and frontier markets, continuing to attract sizeable foreign portfolio inflows,” the firm stated, estimating outstanding foreign portfolio investment (FPI) positions at between $12bn and $14bn.
The analysts projected that if a significant portion of 2025 inflows entered at around N1,500/$, and the naira strengthens further to a midpoint range of N1,200–N1,250/$, investors could record FX gains of about 22.4 per cent on currency movements alone. Such gains, they warned, could heighten the risk of capital outflows, particularly amid uncertainties ahead of the general elections.
Ahead of Monday’s Monetary Policy Committee meeting of the CBN, the report observed mixed signals likely to influence policy decisions. Inflation is moderating and short-term rates are converging around 22 per cent — about 500 basis points below the Monetary Policy Rate (MPR) of 27 per cent.
However, recent remarks by the CBN governor at the National Economic Conference suggest limited tolerance for excess liquidity, which the apex bank views as a potential threat to recent stability gains.
So far this year, the CBN has net-issued N10.9tn through Open Market Operations (OMO) and maintained an attractive Standing Deposit Facility (SDF) rate to encourage banks to deposit excess liquidity. The bank is also mindful of election-related liquidity pressures expected to intensify in the second half of the year.
Of the projected N44.2tn liquidity expected in 2026, more than 75 per cent is anticipated in the first half of the year.
CardinalStone said it sees a 60 per cent probability that the CBN will hold the policy rate steady while adjusting the asymmetric corridor to align the SDF rate with OMO yields, in order to preserve the attractiveness of OMO instruments and retain banks as key counterparties for foreign investors. It assigned a 40 per cent probability to a modest rate cut of 50–100 basis points.
Looking ahead, forward market pricing suggests potential currency weakness later in the year. Six-month non-deliverable forwards indicate a rate near N1,449.96/$ in the early second half, with the firm projecting a base-case range of N1,350–N1,450/$ for 2026.
