Naira Under Pressure as Gains Reverse Amidst Dollar Demand
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The naira lost ground against the US dollar last week, reversing some of the gains it had made in recent months, as rising demand from foreign portfolio investors and local businesses strained the foreign exchange market.
At the close of trading, the currency weakened by 1.66% week-on-week, sliding to ₦1,517.24/$ from ₦1,492.49/$ in the official market. A similar trend played out in the parallel market, where the naira eased to an average of ₦1,520/$. Some Bureau de Change operators reported a sharper decline, with the naira losing as much as ₦70 to close at ₦1,570/$ by the end of the week.
This marks a setback for the naira, which had ended February 2025 with an 8.5% gain month-on-month in the parallel market, settling at ₦1,490/$. It had closed at ₦1,500/$ in the official market, reflecting a marginal 1.7% monthly dip. Analysts had been cautiously optimistic about the naira’s prospects for March, barring unexpected shocks.
Dollar Demand Outpaces Supply
Financial analysts have pointed to a combination of tight dollar liquidity and increased demand from both foreign investors and local corporates as the primary reasons for the naira’s renewed struggles.
“The naira depreciated this week due to tight dollar liquidity and increased demand from foreign portfolio investors and local corporates,” investment firm AIICO Capital Limited noted in an investor report. Despite interventions from the Central Bank of Nigeria (CBN), demand for the dollar remained strong, driving up exchange rates.
CardinalStone, in its daily market report on Friday, echoed these concerns, stating that pressure on the naira was being fuelled by “profit-taking actions by foreign portfolio investors and local corporates, offsetting support from CBN’s intervention at the interbank market.”
CBN’s Next Moves Could Be Pivotal
The Central Bank of Nigeria has been making weekly interventions in the foreign exchange market to stabilise the naira, and analysts believe its continued involvement will be crucial in shaping the currency’s trajectory.
Cowry Assets Management Limited pointed out that the CBN, with foreign reserves of $38.35bn as of Thursday, has enough resources to provide a buffer for the naira. “While the short-term outlook suggests a moderate market performance, an improved supply of dollars could provide some relief for the local currency,” the firm noted.
Afrinvest’s latest Monthly Market Report also suggests that the naira could regain stability in March, provided the CBN maintains its dollar supply to Bureau de Change operators and deposit money banks. However, this hinges on the absence of significant market shocks.
Underlying Risks Still Loom
Despite the CBN’s efforts, economists warn that deeper structural challenges continue to threaten the naira’s stability. Nigeria’s growing debt burden, declining foreign reserves, and persistently high inflation remain key concerns. Without addressing these issues, experts caution that foreign exchange reforms may struggle to deliver sustained improvements.
For now, all eyes remain on the CBN’s next moves—and whether they will be enough to keep the naira from further turbulence.
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