By Chinwendu Obienyi
Despite persistent volatility in the global oil market triggered by shifting geopolitical tensions and fluctuating ceasefire negotiations involving the United States and the Middle East, the naira strengthened by 4.42 per cent in the first four months of 2026.
This showed Nigeria’s intensified efforts to stabilise the local currency amid mounting external pressures.
The currency appreciated by 0.86 per cent month-on-month (m/m) at the official window to close at N1,374.94/$1, compared to N1,386.72/$1 at the end of March. The parallel market mirrored this positive trend, with the naira appreciating to N1,373/$1 in April, from N1,398/$1 in March, representing a 1.82 per cent month-on-month (m/m) gain.
On the surface, the performance signals improving macroeconomic stability and a gradual restoration of investor confidence in the country’s currency framework.
Yet, beneath this apparent steadiness lies a more complicated reality, the stability is not fully market-driven. Instead, it reflects an increasingly intervention-heavy approach by the Central Bank of Nigeria (CBN), operating in an environment still defined by structural dollar shortages, volatile crude oil earnings, and persistent import demand pressures.
The result is a currency market that looks calmer on paper, but remains fundamentally fragile underneath. Looking at the monthly data, the convergence between both markets has been widely interpreted as a sign of improving FX liquidity and narrowing arbitrage gaps.
However, intraday movements tell a more nuanced story. Mid-month, the naira briefly strengthened to N1,341.01/$1, only to retrace losses toward the end of April as corporate FX demand, import obligations, and portfolio adjustments returned to the market.
This pattern, short-lived gains followed by gradual corrections, suggests that underlying demand pressures remain unresolved. In essence, the market is being stabilised, not structurally balanced.
The distinction matters because a stable currency typically reflects sustained inflows, diversified export earnings, and predictable policy frameworks. A managed currency, by contrast, depends heavily on official intervention to smooth volatility, often at the expense of external buffers.
At the center of this stability effort is the CBN’s continued presence in the FX market. Through periodic dollar sales and liquidity injections, the apex bank has sought to reduce volatility, narrow exchange rate disparities, and curb speculative trading activity.
These interventions have had visible short-term effects. Volatility has declined compared to previous cycles, and the gap between official and parallel market rates has narrowed significantly. Speculative pressure, once a dominant feature of Nigeria’s FX landscape, has also eased. However, this stability has not come without cost.
The country’s external reserves fell by approximately $880 million in April, declining from $49.24 billion to $48.36 billion. While part of this drawdown reflects scheduled external debt servicing obligations, FX market interventions accounted for a substantial portion of the decline.
This raises a critical policy question as to how sustainable is stability financed through reserve depletion?
Reserves are not just a buffer for currency defence; they are also a signal of external credibility. Persistent drawdowns, if not matched by robust inflows, risk weakening long-term confidence even if short-term volatility is contained.
Oil volatility
It should not be forgotten that the country’s FX stability remains deeply tied to crude oil performance, given that hydrocarbons still account for the bulk of FX earnings.
For instance, in April, Bonny Light crude, Nigeria’s benchmark grade, oscillated sharply between $128.13 and $137.01 per barrel. These swings were not driven by demand fundamentals, but by geopolitical developments, particularly tensions in the Middle East and shifting diplomatic signals involving major global actors.
While Brent crude remained relatively elevated compared to historical averages, its volatility reflected a market increasingly shaped by supply-side uncertainty rather than consumption trends. The divergence between Brent and WTI further reinforced this dynamic, with Brent more exposed to geopolitical risk premiums while WTI remained anchored by U.S. inventory stability.
For Nigeria, these fluctuations have immediate fiscal and monetary implications. Oil revenue determines not only government spending capacity but also the availability of FX inflows into the domestic economy. When prices swing unpredictably, budget planning becomes more difficult, and FX liquidity becomes less reliable.
This dependence exposes a structural vulnerability: even when the CBN stabilises demand-side pressures, supply-side shocks from oil markets can quickly destabilise the broader FX ecosystem.
Import demand and Structural FX pressure
Beyond oil dynamics, Nigeria continues to face persistent structural demand for foreign currency. Import-dependent sectors, including manufacturing, pharmaceuticals, energy inputs, and consumer goods, continue to exert pressure on FX reserves.
Corporate demand cycles, particularly toward month-end, consistently test the resilience of the FX market. This was evident in April, when early gains in the naira were partially eroded by renewed demand for trade settlement and import-related payments.
The underlying issue is not cyclical but structural. Nigeria’s production base has yet to diversify sufficiently to reduce reliance on imported intermediate and final goods. Until this imbalance is addressed, FX demand will continue to outpace supply during stress periods.
Experts’ react
According to experts, one of the most encouraging developments in recent months has been the narrowing gap between official and parallel market exchange rates. In April, both markets traded within a relatively tight band, with parallel rates even strengthening faster at certain points.
However, convergence should not be mistaken for full market equilibrium. Vice Chairman, Board of Directors at Highcap Securities Ltd, David Adonri, noted that convergence has been achieved through administrative pressure, liquidity management, and targeted interventions rather than structural alignment of supply and demand.
He added that while this reduces arbitrage opportunities and improves headline stability, it does not eliminate underlying distortions. “I would say that the CBN has done very well so far to handle the naira. However, the risk is that once intervention intensity eases, divergence could re-emerge rapidly.
Now I may be wrong but I feel that short-term stability is being prioritised over long-term resilience. On one hand, the CBN has succeeded in restoring a degree of predictability to the FX market. Volatility has declined, market sentiment has improved, and speculative behaviour has moderated. These are meaningful achievements in a historically unstable currency environment”, Adonri said.
On the other hand, these gains are being financed through reserve drawdowns and sustained market intervention, raising concerns about durability.
A currency defence strategy that relies heavily on external buffers is inherently time-limited. Without corresponding growth in export diversification, non-oil inflows, and domestic production capacity, the system risks reverting to instability once interventions slow.
Also speaking, the National Coordinator, Progressive Shareholders Association of Nigeria, Boniface Okezie, said the onus will be on the apex bank to maintain exchange rate stability without eroding the very reserves that underpin that stability.
“There are pressures that would sort of shape this balancing act. There is oil price uncertainty that will continue to drive FX inflow volatility. Secondly, we have persistent import demand which structurally exceeds domestic supply capacity and then we have reserve adequacy concerns because our external buffers are drawn down to stabilize markets. But these factors limit policy flexibility” Okezie stressed.
Conclusion
April’s FX performance should be read less as a turning point and more as a managed pause in a structurally volatile system. The naira’s 4.42 per cent gain is real, but it is also conditional, supported by intervention, exposed to oil shocks, and constrained by underlying demand pressures.
What emerges is not a fully stabilised currency regime, but a carefully managed equilibrium. One that holds for now, but remains sensitive to external shocks and policy fatigue. The challenge ahead is no longer simply defending the naira. It is building an FX system that does not require constant defence.
Until that shift occurs, Nigeria’s currency stability will remain, at best, a carefully maintained balance, and at worst, a temporary illusion of control.
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