The naira has surged to one of its strongest levels in nearly two years, closing at N1,347.78/$ in the official market, as improved liquidity conditions bolster confidence in the foreign exchange window, according to a macroeconomic update by CardinalStone.
The report shows the currency has appreciated by 6.9 per cent year-to-date in the official market, reflecting enhanced FX liquidity and sustained policy interventions. Despite the gains, a gap between the official and parallel markets remains.
The parallel market initially traded at a 5.7 per cent premium before narrowing to about 3.2 per cent, following renewed interventions by the Central Bank of Nigeria.
CardinalStone noted that the shrinking premium signals stronger liquidity in the official window relative to the parallel market.
Last week, the apex bank authorized licensed Bureau de Change (BDC) operators to access FX through approved dealers at prevailing market rates, setting a weekly purchase cap of $150,000 per BDC subject to Know-Your-Customer requirements. Operators are required to offload unused balances within 24 hours to curb hoarding, while cash transactions are limited to 25 per cent of total trades, with settlements processed through licensed financial institutions.
With 82 licensed BDCs, potential monthly FX supply to the segment could reach around $50 million significantly below the over $1 billion supplied monthly before the COVID-19 pandemic.
Nevertheless, the report said the current structure reflects “material improvements in the FX market that reduced speculative demand and routed most corporate FX requirements to the official window,” easing retail pressure and compressing the parallel market premium.
On the foreign portfolio investment (FPI) front, analysts warned that sustained currency appreciation could prompt profit-taking and portfolio rebalancing by foreign investors.
“Nigeria’s carry trade remains one of the most compelling across emerging and frontier markets, attracting sizable inflows,” the report stated, estimating outstanding FPI positions at $12–$14 billion.
Assuming many 2025 inflows entered at N1,500/$, a potential strengthening to N1,200–N1,250/$ could yield FX gains of about 22.4 per cent, raising the risk of exits — particularly amid uncertainties ahead of the general elections.
Ahead of Monday’s Monetary Policy Committee meeting of the CBN, analysts said economic indicators present mixed signals. While inflation is moderating and short-term rates hover around 22 per cent roughly 500 basis points below the 27 per cent Monetary Policy Rate recent comments by the CBN Governor at the National Economic Conference suggest limited tolerance for excess liquidity.
So far this year, the CBN has net-issued N10.9 trillion through Open Market Operations (OMO) and maintained an attractive Standing Deposit Facility (SDF) rate to absorb liquidity and prevent renewed inflationary pressures. Election-related liquidity risks are also expected to intensify in the second half of the year, with more than 75 per cent of the projected N44.2 trillion liquidity for 2026 anticipated in the first half.
CardinalStone projects a 60 per cent probability that the CBN will hold rates steady while adjusting the asymmetric corridor to align the SDF rate with OMO yields, thereby preserving the attractiveness of OMO instruments for banks and foreign investors. However, it assigns a 40 per cent chance to a modest 50–100 basis point rate cut.
Looking ahead, forward-market pricing points to a weaker naira later in the year. Six-month non-deliverable forwards suggest a rate near N1,449.96/$ in the early second half, with CardinalStone projecting a base-case range of N1,350–N1,450/$ for 2026.
