Naira Exhibits Divergent Trends in Official and Parallel Markets
The Nigerian naira presented a mixed performance across different foreign exchange segments on Wednesday, January 21, 2025, highlighting the persistent disparities between regulated and unofficial trading platforms. While the currency experienced marginal weakening in the official market, it demonstrated unexpected resilience in the parallel segment, creating a complex landscape for traders and economists alike.
Official Market Records Slight Depreciation
At the Nigerian Foreign Exchange Market (NFEM), the naira closed at ₦1,420.69 against the US dollar, representing a minor depreciation from previous trading sessions. Data released by the Central Bank of Nigeria indicated this decline occurred despite evidence of enhanced dollar supply from domestic market participants. The official exchange rate continues to reflect ongoing adjustments within the regulated financial framework.
Parallel Market Shows Contradictory Strength
In contrast to the official market's performance, the naira strengthened in the parallel market, trading at approximately ₦1,480 per dollar according to reports from Cowry Asset Management Limited. This represented a 0.03 percent appreciation for the day, underscoring the often contradictory movements between Nigeria's dual exchange rate systems. However, market tracking revealed inconsistencies, with CardinalStone reporting the naira actually slipped to ₦1,492 per dollar in the black market, compared to ₦1,490 on the previous day.
Volatility Characterizes Unofficial Trading
The divergence between different parallel market reports illustrates the ongoing volatility and fragmented pricing structure within Nigeria's unofficial foreign exchange segment. Market analysts note that sentiment, cash scarcity, and speculative demand continue to exert stronger influence on black market pricing than fundamental economic factors, creating an environment of uncertainty for participants.
Improved Supply Supports Official Market Activity
Earlier market activity showed promising signs, with AIICO Capital reporting that the naira had briefly strengthened below ₦1,420 per dollar at the official window on January 20. This temporary improvement was supported by enhanced foreign exchange inflows from local sources, with trades executed within a relatively narrow band of ₦1,421.00 to ₦1,418.40 per dollar.
Nigeria's external reserves continued their upward trajectory, increasing by $49.34 million to reach $45.95 billion as of January 19, 2026. Financial experts emphasize that this steady reserve accumulation provides crucial protection against external economic shocks while bolstering confidence in the nation's currency markets.
Analysts Project Short-Term Stability
Market analysts anticipate the naira will maintain current levels in the immediate future, assuming no significant disruptions to dollar supply or unexpected surges in demand. This cautious outlook persists despite the erratic behavior observed in parallel market trading, suggesting a degree of separation between official and unofficial market dynamics.
2026 Economic Outlook: Strengthening Naira and Declining Inflation
Cordros Securities stands among financial institutions projecting a firmer naira performance in 2026, driven by multiple positive economic indicators. In their comprehensive outlook report titled Building Momentum Beyond the Rebound, the firm forecasts the naira trading within a range of ₦1,350 to ₦1,450 per dollar throughout 2026.
This improved projection compares favorably with their year-end 2025 estimate of ₦1,450, reflecting growing confidence in Nigeria's economic trajectory. Several key factors underpin this optimistic assessment:
- Enhanced agricultural output through increased mechanization and better access to farm inputs
- Easing inflationary pressures with headline inflation projected to slow to 16.3 percent year-on-year
- Declining global oil prices reducing pressure on import costs
- Further disinflation to approximately 14.7 percent by December 2026
Implications of a Stronger Naira
Financial analysts highlight multiple benefits associated with a firmer national currency. A strengthened naira would significantly reduce costs for imported goods and industrial raw materials, particularly affecting food prices and manufactured products. Combined with projected lower fuel prices averaging ₦817.50 per liter, both logistics and production expenses are expected to decrease substantially.
Given that food constitutes approximately 40 percent of Nigeria's consumer price index, improved agricultural productivity emerges as a critical driver of anticipated disinflation trends. Enhanced crop yields through better farming practices and input accessibility would contribute meaningfully to food price stabilization nationwide.
Persistent Market Gaps Amid Improving Fundamentals
While the disparity between official and parallel exchange rates remains a concern for economic planners, analysts identify several positive indicators suggesting improved naira stability in the coming year. Strengthening external reserves, enhanced domestic dollar supply, and ongoing structural reforms collectively point toward a more favorable currency outlook, even as short-term volatility continues to characterize market behavior.
The Central Bank of Nigeria's recent foreign exchange updates revealed additional positive developments, with the naira appreciating by 7 basis points to close at N1,419.35 per dollar at the NFEM on Tuesday. Trading data indicated the currency exchanged within a narrow band of N1,421 to N1,418.40, reflecting steady liquidity conditions and controlled market operations.
