Naira Records Strongest Monthly Gain in Nearly Two Years
Nigeria's naira has achieved a significant milestone, appreciating by approximately 3.6 percent against the U.S. dollar in January 2025. This marks the local currency's strongest monthly performance in nearly two years, fueled by increased foreign investor activity and improved liquidity in the foreign exchange market.
Market Performance and Key Figures
In the official foreign exchange market, the naira gained roughly ₦35 per dollar week on week, closing at ₦1,386.55 per dollar. It even touched an intraweek low of ₦1,381 per dollar, a level not seen in months, reinforcing optimism around recent currency reforms aimed at curbing arbitrage and speculative trading.
The parallel market also experienced relief, with the naira strengthening by ₦25 to close at ₦1,460 per dollar at the end of last week's trading. However, the gap between the official and parallel rates widened slightly, with the FX spread increasing to 5.30 percent from 4.46 percent the previous week. Analysts note that this widening spread reflects lingering structural frictions but does not undermine the broader narrative of improving currency stability.
Factors Driving the Naira's Appreciation
Throughout January, stability largely prevailed in the FX market, driven by improved liquidity and reduced Central Bank of Nigeria intervention. Foreign portfolio investors, along with local market participants, supported the naira's rally. Officially, the naira gained 3.55 percent during the month, while the parallel market recorded a smaller but notable 0.68 percent appreciation.
A key factor behind this positive trend is the surge in Nigeria's external reserves, which crossed the $46 billion mark. In just 30 days, the gross external reserves rose by $687.4 million to $46.18 billion, underpinned by higher crude oil receipts, diaspora remittances, and improved non-oil FX inflows. Analysts view this reserve buildup as a critical anchor for the currency, providing a buffer against depreciation and attracting foreign investors seeking higher returns on naira-denominated instruments.
Analyst Insights and Future Outlook
Osas Igho, a financial analyst, highlighted the importance of Nigeria's external reserves, stating that they give the naira a competitive edge and serve as a firepower against depreciation. Looking ahead, analysts project cautious optimism for February, with moderate gains expected due to steady oil receipts, stronger non-oil inflows, and a favourable trade balance. Stable to mildly bullish oil prices and unchanged U.S. Federal Reserve rates are also anticipated to provide support.
However, firms like AIICO Capital Limited caution that some volatility may persist. They expect the naira to remain broadly stable, with robust external reserves and ongoing fiscal and monetary reforms helping to limit downside risks in the near term. The Central Bank of Nigeria has already updated the exchange rate for customs duty, reflecting the naira's gains and easing cost pressures for importers.
In summary, the naira's bullish run in January, closing at ₦1,386 per dollar, signals a positive shift in Nigeria's economic landscape, driven by foreign investor confidence and strategic reforms.
