Naira stabilised after 2023 crisis, but cracks are emerging

After a six-month rebound from its worst-ever crisis in 2023, the naira weakened sharply in the final days of May, rekindling concerns about the sustainability of Nigeria’s foreign exchange market reforms.

The currency, which had gained strength early in the year on the back of monetary policy moves, fell to ₦1,630/$1 in the black market on Friday, reversing weeks of relative calm. The official rate closed the month at ₦1,586/$1, according to Central Bank data – widening the gap between the two markets and renewing debate over Nigeria’s FX strategy.

In late 2023, the naira plunged to ₦1,900/$1 in the parallel market after the government merged its multiple exchange rates and removed petrol subsidy. In early 2024, reforms initiated by the Central Bank under Governor Olayemi Cardoso helped a reversal.

The bank raised interest rates, cleared a multibillion-dollar FX backlog, and repeatedly sold dollars to money exchangers as demand spiked. The clampdown on informal currency traders and a push to route demand through official windows also helped stabilize demand pressure.

By January 2025, the naira had rallied to as strong as ₦1,478/$1, sparking optimism that Nigeria had turned a corner.

Through February and March, the currency held firm between ₦1,490 and ₦1,540/$1, both in the official and parallel markets. For the first time in years, the gap between both markets narrowed to below 10%, encouraging dollar inflows.

That progress began to fray in April. Demand pressures from imports, a slowdown in diaspora remittances, and cautious investor sentiment gradually chipped away at the gains. By mid-May, the naira had slipped back to ₦1,620/$1 in the parallel market—then fell further to ₦1,630/$1 by month’s end, even as the official rate remained relatively stable.

The growing divergence between official and street rates, now over ₦40, has unsettled market watchers who once hailed the shrinking gap as a key indicator of FX stability.

The naira also weakened against the pound and euro in the informal market. Meanwhile, the official rate has shown mixed performance, with marginal appreciation in recent days likely driven by CBN interventions.

The African Development Bank has projected that the naira may depreciate by at least 6% between 2025 and 2026, citing continued volatility in global financial markets. That outlook stands in contrast to recent statements by the CBN governor, who last week claimed the naira’s volatility had dropped to below 0.5% — a figure increasingly at odds with unfolding market realities.