After two consecutive months of appreciation, the Naira depreciated at both the official and parallel windows in March 2026, weakening by 174bps and 14bps month-on-month, respectively.
The reversal was primarily driven by heightened geopolitical tensions between the United States and Iran, which pushed Brent crude above $100 per barrel for the first time since 2022 and triggered offshore portfolio outflows from Nigeria amid global risk-off sentiment, despite stronger oil price fundamentals.
The simultaneous adjustment across both FX windows narrowed the spread to 2.01% in March from 3.67% in February, reducing arbitrage incentives and signalling improved pricing alignment across markets.
Foreign reserves declined to $49.24bn despite elevated oil receipts and a 70% moderation in net equity outflows to N5.61bn in February, suggesting possible FX intervention by the Central Bank of Nigeria to support liquidity. Although Nigeria’s restoration to the FTSE Russell Frontier Market Index (effective September) could modestly support portfolio inflows, elevated global risk sentiment may limit the gains. The Naira is likely to face near-term pressure from global shocks before later benefiting from stronger oil prices.
Why Does This Matter?
Central Bank of Nigeria actions remain a key anchor, with sustained FX interventions supporting the official market, although effectiveness is beginning to moderate as demand resurfaces. On the inflow side, Nigeria’s Frontier Market reclassification is expected to boost FX inflows and support Naira stability, alongside stronger oil prices—Brent rose to ₦118.36/b on March 31 and averaged $102.88/b in March. However, foreign reserves show early signs of pressure, with the pace of accretion slowing and turning negative in March.
The outlook is balanced but under pressure. Headwinds persist as sustained $100+ crude raises PMS prices, feeding imported inflation and eroding Naira gains. At the same time, persistent reserve drawdown by the Central Bank of Nigeria could constrain future intervention capacity, while increased defense and pre-election spending widen fiscal deficits and deepen reliance on borrowings. This is further pressured by external debt rising to a record $48.46bn as of September 2025.
On the upside, higher crude prices driven by tensions involving Iran are boosting oil export earnings, strengthening reserves, and supporting Naira stability. The Central Bank of Nigeria continues timely intervention, while a likely FTSE re-rating is expected to drive further equity inflows and strengthen FX supply.
What’s Next for April 2026?
In April, we expect Naira to maintain an average trading band of N1,360–N1,400/$ at the official window (NFEM) and N1,385–N1,425/$ at the BDC. Ongoing CBN interventions and expected FX inflows should anchor market stability.
The Naira is expected to remain under pressure following the reversal of the temporary pause in geopolitical tensions between the US and Iran. Although Nigeria’s restoration to the FTSE Russell Frontier Market Index could support investor sentiment, heightened global risk is likely to override these gains and limit capital inflows, sustaining exchange rate volatility.
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