Nigeria’s exchange rate appreciated significantly in January 2025, gaining N63.72 against the dollar to close at N1,474.78 per dollar on January 31 at the Nigerian Foreign Exchange Market.
According to data from the FMDQ Securities Exchange Limited and the Central Bank of Nigeria, this increase of 4.14 per cent pushes the local currency to the highest level it has reached in seven months, with the last time the currency traded at a similar rate being June 11, 2024, when it stood at N1,473.88/$ in the official market.
The sharp increase has been attributed to policies implemented by the CBN, which have influenced market dynamics and contributed to the currency’s strengthening.
Authorised currency dealers quoted the dollar as high as N1,495.01/$ and as low as N1,447.50/$ at the NFEM.
The naira opened the year at N1,538.50/$ on January 2, 2025, and steadily gained value throughout the month.
By January 3, it had dipped slightly to N1,535.00 before fluctuating within a range that saw it hit N1,560/$ on January 16, marking its highest point for the month.
However, the currency embarked on a more sustained appreciation from the third week of January, closing at N1,531/$ on January 24 and further strengthening to N1,520/$ on January 28.
It continued its climb, settling at N1,506/$ on January 29 and N1,493/$ on January 30 before reaching N1,474.78/$ on the last trading day of the month of January.
The naira also appreciated against the US dollar in the parallel market on Friday, closing at N1,610/$, compared to N1,630/$ recorded on Thursday, representing a N20 increase within a day.
This latest movement reflects the impact of recent monetary and foreign exchange measures introduced by the CBN to stabilise the currency and improve market confidence.
The introduction of the Electronic Foreign Exchange Matching System in December 2024 has played a significant role in this development.
The platform, which operates through Bloomberg’s BMatch system, allows authorised dealers to place anonymous orders into a central limit order book, ensuring transparency and efficient price discovery in the foreign exchange market.
This system has helped reduce market distortions and provided the CBN with enhanced oversight capabilities, making it easier to manage fluctuations in the exchange rate.
Another crucial factor influencing the naira’s recent appreciation is the introduction of the Nigeria Foreign Exchange Code, launched on January 28, 2025.
“The FX Code marks a new era of compliance and accountability. It is not just a set of recommendations; this is an enforceable framework. Under CBN Act 2007 and BOFIA Act 2020, violations will be met with penalties and administrative actions,” CBN Governor Olayemi Cardoso said during the launch of the FX Code.
The FX Code establishes principles for ethical conduct, governance, execution, information sharing, risk management, and settlement processes among market participants.
By aligning Nigeria’s foreign exchange operations with global best practices, the initiative has strengthened investor confidence and contributed to the recent improvements in the currency’s performance.
At the end of 2024, the naira stood at N1,535.00 per dollar on December 31, reflecting the challenges that had persisted in the forex market.
However, the policy interventions introduced by the apex bank in early 2025 have helped stabilise the market, allowing the currency to make significant gains over the past month.
The improved transparency in the foreign exchange system has reduced speculative activities, ensuring that exchange rates better reflect actual market conditions.
However, while the local currency is improving, Nigeria’s foreign exchange reserves experienced a significant decline in January 2025, dropping by $1.11bn over the course of the month.
According to data from the CBN, the country’s reserves stood at $40.88bn on January 2, but by January 30, they had fallen to $39.77bn.
This represents a 2.72 per cent decrease within the one month.
The decline in reserves follows ongoing interventions by the CBN in the foreign exchange market, as well as external debt servicing obligations and capital outflows.
While the naira appreciated significantly within the same month, the reduction in reserves seems to suggest that the CBN may have deployed part of its FX stockpile to stabilise the local currency and manage liquidity in the official market.
At the start of January, reserves remained above the $40bn mark, recording $40.88bn on January 2 and fluctuating within that range for the first half of the month.
By January 10, reserves stood at $40.75bn, and they peaked at $40.96bn on January 6 before beginning a gradual decline.
By mid-month, reserves had dropped to $40.42bn on January 15, further sliding to $40.05bn by January 22.
The steepest declines occurred in the last week of January when reserves fell below $40bn for the first time in months, hitting $39.99bn on January 23 and $39.77bn by January 30.
With the FX reserves at a three-month low, the consistent drawdown indicates heightened FX demand and possible interventions by the monetary authorities to maintain exchange rate stability.
The current decline is similar to the significant drop recorded in April 2024, when reserves plunged by $2.16bn within 29 days.
At the time, Cardoso attributed the decline to debt servicing and other financial obligations rather than interventions to stabilise the naira.