Naira Stability Unsupported by Economic, Market Realities –Experts
The Nigerian naira has shown relative stability in early 2025, trading at approximately ₦1,500 per US dollar in the official market and around ₦1,505 per dollar in the parallel market.
While this may seem like a positive development, economic analysts and financial experts caution that the stability is artificial and unsustainable due to Nigeria’s deep-seated economic vulnerabilities.
Despite the Central Bank of Nigeria’s (CBN) efforts to maintain foreign exchange (forex) stability through policy interventions, the naira remains exposed to fundamental structural weaknesses.
Exchange rate remains exposed to fluctuation in foreign portfolio inflows, inflationary pressures, weak export earnings, and a chronic US dollar liquidity. After a highly volatile 2024 that saw the naira trade at over ₦1,700 per US dollar, the currency appeared to have stabilized in the first quarter of 2025.
However, many economists argue that this stability is not rooted in strong economic fundamentals but rather in short-term capital inflows and policy-driven adjustments. The monetary authority’s efforts to keep the naira stable with inflation slowing down gradually, and a pause in its policy tightening.
In February 2025, the Central Bank of Nigeria (CBN) decided to maintain its benchmark interest rate at 27.50%—the highest in recent history—after multiple hikes in 2024.
This move was primarily aimed at controlling inflation, stabilizing the forex market, and attracting foreign investors. CBN Governor Olayemi Cardoso expressed optimism about the naira’s performance, stating: “We are seeing a gradual decline in inflation, and our monetary policy measures are yielding results. Our goal is to bring inflation to single digits over the coming years.”
Inflation, which peaked at 28.9% in December 2023, has started to moderate, with a reported decline to 24.48% in January 2025. However, analysts warn that underlying risks, particularly food price inflation and supply chain disruptions, remain high. Despite recent improvements, multiple structural weaknesses threaten the long-term stability of the naira, overreliance on Foreign Portfolio Inflows.
Nigeria’s current exchange rate stability is largely supported by foreign portfolio investments (FPIs), which surged in response to the CBN’s high-interest-rate policies. While this has temporarily bolstered forex liquidity, it is not a sustainable solution.
Bismarck Rewane, CEO of Financial Derivatives Company, recently warned that the naira’s current stability is artificial. “It is driven by ‘hot money’ from foreign investors seeking short-term gains from high interest rates. Once these investors pull out, we will see renewed pressure on the currency.”
Unlike foreign direct investment (FDI), which brings long-term capital and economic development, FPIs can leave the country abruptly, triggering sharp currency depreciations, analysts said.
Despite policy efforts, Nigeria still faces a forex liquidity crisis. Many businesses struggle to access dollars at the official exchange rate, forcing them to turn to the parallel market at higher rates.
At a huge costs to the nation’s external reserves, CBN’s intervention has reduced the gap between the official and black market rates, but forex supply remains limited. Without a steady inflow of forex from productive economic sectors, sustaining exchange rate stability will be difficult, a position held by economic experts.
Nigeria’s foreign exchange earnings are still heavily tied to crude oil exports, making the economy vulnerable to external shocks. With oil contributing over 80% of forex earnings, any decline in global oil prices directly impacts forex supply.
Former CBN Deputy Governor Kingsley Moghalu highlighted the issue when he said, “Nigeria’s economic model is outdated. We must move away from oil dependency and invest in non-oil exports, manufacturing, and technology to create a more resilient economy.”
The lack of diversification means that external shocks such as lower oil prices or production cuts can quickly erode any forex stability gained through monetary interventions. Although inflation has slightly declined, it remains alarmingly high. The removal of fuel subsidies and electricity tariff hikes have increased production costs, directly affecting the price of goods and services.
High inflation erodes the purchasing power of the naira, making it difficult to sustain its value against foreign currencies. If inflationary pressures persist, the CBN’s tight monetary policy may prove insufficient to maintain a stable exchange rate.
Muda Yusuf, former Director-General of the Lagos Chamber of Commerce and Industry (LCCI) said, “We cannot have a strong and stable naira when our economy is import-dependent. We must promote local production and improve our export competitiveness.”
Until Nigeria significantly increases its non-oil exports—such as agricultural products, solid minerals, and manufactured goods—its forex supply will remain fragile, making exchange rate stability difficult to sustain.
While the naira has shown signs of stability in early 2025, experts warn that this is temporary unless Nigeria implements deep structural reforms. The current stability is largely fuelled by short-term policy measures, particularly high interest rates attracting foreign portfolio inflows. However, these inflows are not a sustainable solution.
For Nigeria to achieve true exchange rate stability, it must diversify its economy and reduce oil dependency, strengthen forex reserves through long-term investments, tackle inflation and reduce cost-of-living pressures.
Without these structural changes, the naira remains vulnerable to external shocks and policy reversals, making any perceived stability an illusion rather than a long-term reality. #Naira Stability Unsupported by Economic, Market Realities –Experts CBN Opens FX Window for BDC to Stock up at NFEM Rate
