Naira Surges to Three-Year High Amid Dollar Sell-Off and Rising Reserves
The Nigerian naira has achieved a significant milestone, reaching its highest value in three years as dollar hoarders begin to offload their holdings. This rally is supported by Nigeria's external reserves climbing to an impressive $48.5 billion, the highest level in 13 years, providing a robust buffer for the Central Bank of Nigeria (CBN) to manage currency stability.
Policy Reforms and Market Convergence
Recent reforms implemented by the CBN, including the introduction of the Electronic Foreign Exchange Matching System, have enhanced transparency and reduced speculative trading in the foreign exchange market. These measures have led to a sharp narrowing of the gap between the official and parallel markets, with the spread compressing to less than one percent. Previously, the difference was as wide as N92, but now the naira trades around N1,345 per dollar in the parallel market, converging closely with the official rate of approximately N1,340.
Johnson Chukwu, chief executive of Cowry Asset Management, noted that the appreciation in the parallel market signals a shift in behavior, as dollar holders sell to avoid potential exchange losses. With confidence in the naira improving, speculative demand for dollars appears to be diminishing, further stabilizing the currency.
Strong Economic Fundamentals Underpin Rally
Analysts attribute the naira's rebound to several strong economic fundamentals. In addition to the rise in external reserves, the $20 billion Dangote Refinery is expected to contribute significantly by generating over $10 billion in refined product exports this year. This influx of dollars will ease pressure on foreign exchange demand and support the economy.
High domestic interest rates, currently around 27 percent, have also attracted foreign portfolio investors. In the first nine months of 2025, portfolio inflows surged by 225 percent year-on-year to $14.3 billion, accounting for the majority of capital importation. With global yields declining, Nigeria's returns remain attractive to international investors.
Corporate Strategies and Cautious Optimism
Corporations are re-evaluating their dollar holdings in response to the naira's strength. A senior treasury manager at a Lagos-based multinational revealed that companies with large dollar savings are beginning to sell their positions to capitalize on the local currency's momentum. However, not all firms are rushing to unwind their dollar assets.
Efosa Ajayi, finance lead at Shara, explained that about 10 percent of the company's balance sheet is held in dollars strictly to meet foreign obligations, with a 20 percent sensitivity buffer built into annual planning to absorb exchange-rate fluctuations. Similarly, Gift Emihia, finance lead at Tyrus Technologies, emphasized that while the recent appreciation is encouraging, sustained liquidity and consistent policy direction are necessary before declaring a lasting structural shift.
Potential Risks and Future Outlook
Despite the positive trends, experts caution that the naira's gains could be reversed if foreign investors perceive election risks or believe the currency has reached its fair value. A sharp withdrawal of portfolio investments could quickly undermine current stability. The CBN continues to monitor the situation closely, with recent actions such as reopening dollar sales to Bureau De Change operators helping to further narrow market gaps.
Overall, the naira's rally is reshaping Nigeria's financial landscape, prompting dollar hoarders to adjust their strategies, policymakers to leverage stronger economic buffers, and investors to watch closely for signs of enduring resilience in the currency's resurgence.
