The Nigerian naira experienced a significant appreciation in January 2025, gaining N63.72 against the US dollar to close at N1,474.78/$ on January 31st at the official Nigerian Foreign Exchange Market (NFEM). This 4.14% increase marks the local currency’s strongest position in seven months, reaching levels last seen in June 2024. The naira opened the year at N1,538.50/$ and steadily gained value throughout January, despite some fluctuations.
The naira’s resurgence is attributed to several key policies implemented by the Central Bank of Nigeria (CBN). These include the introduction of the Electronic Foreign Exchange Matching System in December 2024, which has enhanced transparency and price discovery in the forex market. The system, operating through Bloomberg’s BMatch, allows for anonymous order placement, reducing market distortions and improving CBN oversight. Additionally, the launch of the Nigeria Foreign Exchange Code in late January 2025 has instilled greater investor confidence by establishing clear principles for ethical conduct and market operations.
CBN Governor Olayemi Cardoso emphasized the enforceable nature of the FX Code, highlighting its role in aligning Nigeria’s forex practices with global standards. The code covers areas such as governance, risk management, and settlement processes, promoting accountability and transparency among market participants. These measures have contributed to a more stable and predictable exchange rate environment, reducing speculative activities and allowing the naira to better reflect market fundamentals.
Despite the naira’s appreciation, Nigeria’s foreign exchange reserves experienced a significant decline in January, dropping by $1.11 billion to $39.77 billion. This decline, representing a 2.72% decrease, is attributed to CBN interventions in the forex market, external debt servicing, and capital outflows. While the naira strengthened, the reserve drawdown suggests the CBN may have used its FX holdings to stabilize the currency and manage market liquidity. The decline mirrors a similar drop in April 2024, which Cardoso attributed to debt servicing and other obligations.
