By Chinwendu Obienyi
The Central Bank of Nigeria (CBN) has remained at the forefront of efforts to stabilise the naira, as the local currency battles external shocks, shifting investor sentiment, and persistent domestic challenges.
While modest gains have been recorded in recent weeks, supported by targeted interventions, stronger non-oil inflows and steady reserve accumulation, there are concerns from economic analysts that volatility risks remain elevated, which then underscores the delicate balance the apex bank must maintain.
After months of turbulence that saw the naira trade at record lows, recent trends point to a gradual restoration of confidence in the foreign exchange (FX) market.
Specifically, at the Nigerian Foreign Exchange Market (NFEM) window, the naira strengthened 0.89 per cent week-on-week (w/w) to settle at N1,519.00/$1, buoyed by improved liquidity and sustained inflows.
The parallel market, long a barometer of public sentiment on the naira, also reflected renewed optimism, appreciating 1.85 per cent to an average of N1,510/$1.
This development this suggests that speculative pressures are moderating, thanks to increased oversight and the CBN’s firmer grip on liquidity management.
Similarly, this positive momentum is being underpinned by Nigeria’s external reserves which climbed for the tenth consecutive week, adding $87.11 million to reach $41.66 billion. The build-up is incredible and is very critical in bolstering the apex bank’s capacity to intervene when necessary.
Since assuming office, CBN Governor Olayemi Cardoso has signaled a shift towards a more market-reflective FX framework, while still retaining room for targeted interventions to calm volatility.
For instance, the bank has injected liquidity at key moments, including the recent $29 million support that helped strengthen the naira to N1,519/$1 at the end of last week.
Hitherto, there were concerns that the CBN was walking a tightrope in allowing market forces to determine the direction of the naira, the apex bank have stepped in to prevent disorderly movements. Hence, this balancing act remained very essential in maintaining credibility both at home and abroad.
The apex bank’s strategy also includes encouraging non-oil exports, tightening compliance among bureau de change operators, and deploying monetary tools such as higher interest rates to attract portfolio inflows. These moves, though sometimes unpopular, are part of a broader effort to create a more transparent, liquid, and resilient FX market.
However, the FX market outlook remains closely tied to developments in global oil markets, Nigeria’s dominant source of foreign exchange earnings.
International crude prices came under pressure this week following a downward revision of demand forecasts by the International Energy Agency (IEA). The agency cut its 2025 growth estimate to 750,000 barrels per day, citing weakening consumption in emerging markets and an anticipated contraction in OECD demand.
OPEC, however, maintained a more bullish stance, projecting demand growth of 1.3 million barrels per day this year and 1.4 million next year, led by non-OECD economies. Despite these contrasting views, traders remained cautious, pointing to uncertainties around China’s ability to sustain record stockpiling and the potential impact of fresh Western sanctions on Russian oil exports.
Interestingly, Nigeria’s Bonny Light crude defied the global bearish mood, rising by 2.16 per cent to close at $68.56/bbl, this providing some level of support for the country’s external earnings, although production challenges remain a persistent concern.
Beyond oil, Nigeria’s FX stability is being tested by broader global financial conditions. The anticipated U.S. Federal Reserve rate cut and easing global yields are expected to boost investor appetite for emerging market assets, potentially benefiting naira-denominated securities. However, the timing and scale of these inflows remain uncertain.
Chief Executive Officer, Cowry Asset Management Limited, Johnson Chukwu, noted the global environment remain a double-edged sword. According to him, “Lower U.S. yields could help Nigeria attract capital inflows, but persistent geopolitical risks and slower Chinese growth may still weigh on commodity prices and investor risk appetite.”
Domestically, inflation, hovering at 21.88 per cent, (the figure might change) remains a formidable challenge, eroding real returns and complicating the central bank’s task. High consumer prices have stoked public discontent and increased pressure on policymakers to balance growth, price stability, and currency management.
Hence, analysts broadly agree that sustained FX stability will depend on the government’s ability to push through structural reforms.
The removal of fuel subsidies, liberalization of the FX market, and fiscal consolidation are all key elements of the Tinubu administration’s economic agenda. Yet, implementation gaps and policy reversals could undermine progress.
This is basically why the CBN led by Cardoso have continually stressed its commitment to transparency and efficiency in the FX market, highlighting measures to clear outstanding FX backlogs and rebuild investor confidence. Progress on this front has been welcomed by stakeholders, though concerns linger over the pace of backlog clearance and the bank’s ability to maintain consistency in policy signaling.
Experts’ reactions
In the near term, analysts expect the naira to trade within a relatively narrow band, supported by interventions, reserve buffers, and improving non-oil inflows. However, they warn that any sharp reversal in global oil prices, renewed speculative demand, or domestic policy missteps could trigger volatility.
Chukwu, whilst stating that the naira has shown signs of resilience, said it still remains vulnerable to shocks. “
“Stability is achievable, but it requires disciplined policymaking, deeper structural reforms, and effective communication from the CBN. We expect the naira to maintain its current trend of appreciation, supported by steady dollar inflows, CBN interventions, and stronger external reserves.
However, renewed speculative activity could spark volatility. In the oil market, bearish demand forecasts may keep global prices under pressure, though
Nigeria’s resilient Bonny Light and gradual reserve build-up provide buffers that could help sustain near-term currency stability”, he said.
Reiterating, analysts at Cordros Research, noted that the naira is expected to remain stable, supported by resilient FX market liquidity and improving domestic inflows in the near term.
They added that anticipated capital inflows should benefit from the expected Fed rate cut and broader easing in global yields, potentially strengthening investor appetite for naira-denominated assets.
“Additionally, stronger non-oil export receipts and reduced incentives for speculative positioning are likely to reinforce the positive momentum, pointing to a more balanced FX market outlook”, they said.
For the banking sector, a more stable FX market is critical. Banks have faced rising costs of foreign obligations, tighter dollar liquidity, and greater risks in cross-border transactions. Therefore, a stronger naira could ease balance sheet pressures and improve access to foreign funding, but volatility remains a key risk factor.
Conclusion
The CBN’s current approach, anchored on cautious intervention, reserve management, and reform-driven inflows has no doubt, bought the naira some breathing space.
Yet, sustaining stability in the face of external headwinds will require not just central bank action, but coordinated fiscal, trade, and investment policies.
As Nigeria navigates an increasingly complex global and domestic environment, the coming months will test the durability of recent gains. For now, the CBN’s steady hand appears to be keeping volatility in check, but the path ahead remains fraught with uncertainty.
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