In February, the Naira continued its appreciation trend, strengthening across both the official and parallel foreign exchange markets. The currency traded within the N1,300/$ range, closing at N1,363.40/$ at the official window and N1,365/$ in the parallel market. Notably, this marks the first time since May 2024 that the parallel market rate has fallen below N1,400/$, reflecting improved stability and growing confidence in the foreign exchange market.
Overall, the Naira’s appreciation at the parallel market and the narrowing gap with the official rate signal improving convergence in Nigeria’s FX market. This stability has been supported by stronger external buffers, with foreign reserves rising above $50 billion, the highest level since 2009, alongside the broader weakening of the U.S. dollar against major global currencies.
Why Does This Matter?
The recent appreciation of the Naira and the rise in foreign reserves signal improving external buffers and stronger support for Nigeria’s FX market. Higher oil prices and growing reserves help ease import price pressures and reduce the cost of servicing external debt.
However, several risks could affect this outlook. Rising geopolitical tensions between the United States and Iran could introduce uncertainty, as oil prices climbing above $100 per barrel may increase foreign exchange earnings and strengthen reserves, but also fuel inflationary pressures and heighten global risk aversion. At the same time, rising PMS prices and transport costs, increased pre-election spending, and security concerns could widen fiscal deficits and increase reliance on borrowing. Furthermore, continued investor profit-taking and global market volatility may also weaken capital inflows and place renewed pressure on the Naira despite stronger oil revenues.
What’s Next for March 2026?
FX stability is expected to persist in March, supported by stronger oil revenues and continued reserve accumulation. The Naira is likely to trade within a relatively stable range as the Central Bank maintains policy oversight and interventions to support market stability. However, inflationary pressures and shifts in global investor sentiment could moderate gains, leaving currency performance sensitive to policy actions and capital flow dynamics.
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