Nigeria’s exchange rate experienced significant appreciation in January 2025, strengthening by N63.72 against the US dollar to close at N1,474.78/$ on January 31 at the Nigerian Foreign Exchange Market.
According to data from FMDQ Securities Exchange Limited and the Central Bank of Nigeria (CBN), this 4.14% increase marks the highest exchange rate in seven months. The last time the naira traded at a similar level was on June 11, 2024, when it stood at N1,473.88/$ in the official market.
CBN Policies Drive Naira’s Recovery
The naira’s recent strength is attributed to key monetary and foreign exchange policies introduced by the CBN, which have influenced market trends.
At the Nigerian Autonomous Foreign Exchange Market (NAFEM), currency dealers quoted the dollar at a high of N1,495.01/$ and a low of N1,447.50/$ during trading sessions.
The naira started the year at N1,538.50/$ on January 2 and showed steady improvement, briefly dipping to N1,535/$ on January 3 before fluctuating. It peaked at N1,560/$ on January 16, marking its highest level for the month. However, from the third week of January, the local currency began a sustained appreciation, closing at:
- N1,531/$ on January 24
- N1,520/$ on January 28
- N1,506/$ on January 29
- N1,493/$ on January 30
- N1,474.78/$ on January 31
In the parallel market, the naira also strengthened, closing at N1,610/$ on Friday, up from N1,630/$ recorded the previous day, reflecting a N20 gain within 24 hours.
Electronic FX Matching System and FX Code Drive Market Stability
A major driver of the naira’s appreciation is the Electronic Foreign Exchange Matching System, launched in December 2024. This system, powered by Bloomberg’s BMatch, enhances transparency by allowing anonymous central order book matching for authorized dealers.
Another significant reform is the introduction of the Nigeria Foreign Exchange Code on January 28, 2025. Speaking on the development, CBN Governor Olayemi Cardoso emphasized:
“The FX Code marks a new era of compliance and accountability. It is not just a set of recommendations but an enforceable framework under the CBN Act 2007 and BOFIA Act 2020. Violations will result in penalties and administrative actions.”
The FX Code sets governance and risk management standards, aligning Nigeria’s FX operations with global best practices and boosting investor confidence.
Foreign Reserves Drop Despite Naira’s Strength
Despite the naira’s positive trajectory, Nigeria’s foreign exchange reserves saw a $1.11 billion decline in January, falling from $40.88bn on January 2 to $39.77bn on January 30, marking a 2.72% drop.
The decline is attributed to:
- CBN interventions in the FX market
- External debt servicing
- Capital outflows
In the final week of January, reserves dipped below $40bn for the first time in months, falling to $39.99bn on January 23 and $39.77bn on January 30. This mirrors the sharp $2.16bn reserve drop in April 2024, which Cardoso had linked to debt servicing rather than FX stabilization.
Outlook for the Naira
The continued policy-driven stabilization of the FX market suggests that the naira may maintain its upward trajectory. However, the decline in foreign reserves raises concerns about the sustainability of CBN interventions.
Going forward, the effectiveness of CBN’s FX Code, market transparency measures, and liquidity management strategies will determine whether the naira can sustain its gains or face renewed volatility.
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