Analyzing the Naira’s Recent Performance: A Realistic Look

The Nigerian Naira’s story is never simple. We’re seeing a mixed bag of signals right now. The Naira showed a bit of strength in the parallel market, settling around N1,470 against the dollar, improving from N1,475. Yet, in the official Nigerian Foreign Exchange Market (NFEM), it actually weakened a tad, moving to N1,445.9/$. That’s a slight dip from N1,442/$. What’s happening here?

Year-to-date, the Naira has clawed back some ground, appreciating approximately 7% against the dollar from roughly N1,607 in early 2025. This improvement partially reverses the steep 41% depreciation seen in 2024. It’s a welcome change, certainly. However, one good push doesn’t equate a long-term trend.
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Drilling down, November witnessed a minor uptick of 0.79%. The exchange rate swung between N1,441 and N1,472 during the week. This year’s average hovers around N1,532/$. We saw the highest rate in January at N1,607/$, and the lowest touched N1,421/$ earlier in November.

Nigeria’s foreign reserves have swelled to $46.7 billion. Authorities point to this increase as proof that ongoing CBN reforms are working, stabilizing the economy and bolstering the Naira. Nigeria’s reserves supposedly cover over ten months of imports. That, coupled with a reported 16.05% inflation rate in October and other positive macroeconomic indicators, supposedly paints a picture of renewed economic vigor that could benefit businesses and promote more sustainable growth. The CBN also claims these reserves are the highest since 2018. They attribute this to higher oil revenues, strong balance-of-payments inflows, and a resurgence of foreign and portfolio investment. This should theoretically provide a solid buffer for the country’s foreign exchange needs and intervention capabilities.

We are told that smoother liquidity stems from consistent diaspora remittances and inflows into government securities, specifically as the holiday season gets closer. The CBN’s strategies, like monetary easing and dollar sales, are designed to reduce volatility, or so they claim. The official rate is the volume-weighted average or NFEM rate.
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What about the US Dollar?

Meanwhile, the US Dollar Index (DXY), measuring the dollar’s value against six major currencies, held steady at 99.60 on Friday. Yet, there’s a growing expectation of a rate cut by the Federal Reserve in December, which could further soften the dollar. Word on the street suggests Kevin Hassett, of the White House National Economic Council, might be the next Fed chair. Traders are already speculating that this signals a potential for three more rate cuts by 2026. This is significant, as Hassett is seen as favoring lower interest rates, in line with the previous administration’s agenda. Market sentiment, as reflected in the CME FedWatch Tool, indicates a high probability (over 87%) of the Fed cutting its benchmark rate by 25 basis points at its December meeting. That’s up substantially from 39% the week prior.

Adding another layer, US jobless claims recently dipped to 216,000. At the same time, demand for the dollar as a safe-haven asset has diminished, possibly due to ongoing peace talks between Russia and Ukraine. Remember, these global events have ripple effects.

A Skeptical Perspective

Here’s what I see, having observed these cycles before. It’s easy to get caught up in the narrative of positive trends and reformed policies. However, we must proceed with caution. Currency markets are notoriously fickle. Government pronouncements and carefully chosen statistics often tell only part of the story.

Reserves and Reality: While rising foreign reserves are undeniably positive, what’s driving this increase? How sustainable are these inflows? Are we truly diversifying our revenue streams, or are we still overly reliant on volatile oil prices? Intervention Costs: The CBN’s interventions, while potentially stabilizing the Naira in the short term, come at a cost. Are these interventions sustainable in the long run? Are we simply burning through reserves to maintain an artificial exchange rate? Global Factors: The US Dollar’s trajectory is heavily influenced by global events and the Federal Reserve’s decisions. Nigeria has limited control over these factors. Any significant shift in US monetary policy or global risk sentiment could quickly undo the Naira’s recent gains. The Parallel Market Premium: The continued existence of a significant gap between the official and parallel market rates suggests underlying issues of supply and demand, as well as trust in the official system. This premium distorts the economy and creates opportunities for arbitrage. It implies that the CBN still needs to effectively manage the FX market. Transparency: A black box never inspires confidence. Increased clarity around the CBN’s FX management strategies will build credibility.

This is not to dismiss the progress that has been made. However, a dose of realism is necessary. The Nigerian economy faces significant challenges, including high inflation, unemployment, and infrastructure deficits. Currency stability is crucial, but it’s not a silver bullet. Sustained, broad-based economic growth, driven by diversification and structural reforms, is what Nigeria truly needs. We must keep a close eye on the underlying fundamentals and avoid getting carried away by short-term fluctuations. The road to economic stability is long, and there will inevitably be bumps along the way.

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Keywords: Nigerian Naira, Naira exchange rate, CBN reforms, Nigeria foreign reserves, US Dollar Index, Parallel market premium, Nigeria economy, FX market