The Nigerian naira has seen a significant recovery recently, hitting one of its highest levels in nearly two years, driven by improved liquidity in the official foreign exchange market. According to a report by CardinalStone, the naira appreciated by 6.9% year-to-date, reaching ₦1,347.78 per dollar on Monday. This marks a notable improvement in FX availability.
Despite this, a gap between the official and parallel market rates remains, though it has narrowed. The parallel market premium dropped from 5.7% to about 3.2% following renewed Central Bank of Nigeria (CBN) interventions. CardinalStone noted that the narrowing spread reflects stronger liquidity in the official market compared to the parallel market.
The CBN recently allowed licensed Bureau de Change (BDC) operators to purchase FX from authorised dealers, up to $150,000 weekly per BDC, subject to Know Your Customer (KYC) rules. BDCs are required to sell unused forex within 24 hours, and cash transactions are limited to 25% of total trades, with settlements through licensed financial institutions. With 82 licensed BDCs, this could inject about $50 million monthly into the market—far below pre-COVID levels of over $1 billion. Still, this move has eased retail FX demand and reduced the parallel market premium.
On foreign portfolio investment (FPI), the report warns that sustained naira strength might prompt foreign investors to exit. Nigeria’s high-yield carry trade remains attractive, with estimated FPI holdings between $12 billion and $14 billion. If the naira strengthens to ₦1,200–₦1,250/$, investors who entered at around ₦1,500/$ could see currency gains of about 22.4%, increasing the risk of profit-taking, especially with general elections approaching.
Ahead of the CBN’s Monetary Policy Committee (MPC) meeting, CardinalStone highlights mixed signals. Inflation is easing, and short-term rates are converging near 22%, below the 27% Monetary Policy Rate (MPR). However, the CBN remains cautious about liquidity, having issued ₦10.9 trillion net through Open Market Operations (OMO) this year. The CBN also aims to manage election-related liquidity risks, with over 75% of expected ₦44.2 trillion liquidity in 2026 projected to hit in the first half.
CardinalStone expects the CBN to likely hold the policy rate steady (60% probability) to signal concern over liquidity risks, while possibly adjusting the asymmetric corridor to align with OMO yields. A 50–100 basis point rate cut is seen as less likely (40% probability). Looking forward, six-month non-deliverable forwards suggest a weaker naira around ₦1,449.96/$ by mid-year, with CardinalStone forecasting a 2026 range of ₦1,350–
₦1,450/$.
