The Nigerian naira has rallied sharply in recent weeks, climbing to one of its strongest levels in nearly two years amid improving liquidity in the official foreign-exchange market, even as analysts caution that rising foreign portfolio inflows could heighten the risk of profit-taking later in the year.
According to a macroeconomic update by CardinalStone, the currency has appreciated by about 6.9 per cent year-to-date in the official window, recently trading around N1,347.78 to the dollar — a sign of healthier liquidity conditions and renewed confidence in the formal FX market.
Despite the gains, a gap persists between the official and parallel markets. The parallel segment initially traded at a premium of roughly 5.7 per cent before narrowing to about 3.2 per cent following renewed interventions by the Central Bank of Nigeria. Analysts said the compression indicates stronger supply in the official window relative to the informal market.
The central bank recently allowed licensed Bureau de Change operators to access foreign exchange through authorised dealers at prevailing market rates, subject to compliance requirements. The move is aimed at improving retail FX liquidity and discouraging speculative hoarding, although current supply levels remain significantly lower than pre-pandemic volumes.
CardinalStone noted that improved FX conditions have redirected most corporate demand to official channels, easing pressure on the parallel market. However, the firm warned that sustained currency appreciation could prompt foreign investors to rebalance portfolios.
Nigeria’s carry trade remains attractive compared with other emerging and frontier markets, drawing sizeable inflows estimated at between $12 billion and $14 billion. Analysts projected that investors who entered the market at weaker exchange rates could record notable FX gains if the naira strengthens further, potentially encouraging partial exits — especially as election-related uncertainties approach.
Ahead of the upcoming Monetary Policy Committee meeting, the analysts said policy signals are mixed. Inflation is easing and short-term interest rates have softened, yet the central bank continues to express concern about excess liquidity and its inflationary risks.
So far this year, the apex bank has maintained aggressive liquidity management through open market operations and attractive deposit rates to discourage excess cash circulation. Concerns also remain about election-driven liquidity injections later in the year.
CardinalStone expects policymakers may hold rates steady to reinforce liquidity discipline while adjusting operational tools to sustain investor confidence. The firm assigns a higher probability to a rate hold, with a smaller chance of a modest rate cut.
Looking ahead, forward-market pricing suggests the currency could weaken later in the year, with six-month contracts implying a softer exchange rate.
CardinalStone projects a base-case range of N1,350 to N1,450 per dollar in 2026, reflecting expectations of continued market adjustment despite recent gains.
