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In a bold move to stabilise the naira and ease liquidity constraints, the Central Bank of Nigeria (CBN) injected a total of $4.1 billion into the foreign exchange market during the first half of 2025. This marks a 215% increase from the $1.3 billion disbursed in the same period last year, according to the latest H2 2025 outlook report by CSL Stockbrokers, a subsidiary of FCMB Group.
The intervention comes amid mounting concerns over the sustainability of Nigeria’s currency defence strategy, especially in light of dwindling oil revenues, subdued foreign portfolio inflows, and uncertainties surrounding external financing.
Despite these headwinds, the CBN’s aggressive stance helped limit volatility in the FX market. The naira, which opened the year at N1,535 to the US dollar, appreciated slightly to N1,530/$ by the end of June—thanks largely to these sustained injections.
According to CSL, April saw the most intense intervention, as the naira temporarily weakened to N1,630/$ amid investor caution following the announcement of new US trade tariffs. “In April, CBN’s net FX inflows surged to the highest level so far this year,” the report noted.
Sustainability Concerns Loom
Despite the short-term gains, CSL raised red flags over the long-term viability of the current FX strategy. With oil exports—representing 86% of total exports in 2024—expected to decline by 20% year-on-year in 2025, the capacity to maintain this intervention pace may be constrained.
On the equities front, foreign participation in Nigeria’s stock market increased to 29% by May 2025, up from 20% in May 2024. However, foreign outflows still outpaced inflows, underscoring lingering investor caution.
Looking ahead, CSL projects that FX inflows could remain under pressure, limiting the room for further naira appreciation. The firm also predicts that the CBN may cut interest rates by up to 150 basis points in Q4 2025 if inflationary trends ease—potentially reducing the attractiveness of naira-denominated assets.
Still, recent upgrades to Nigeria’s credit ratings and renewed talks of inclusion in the JP Morgan Emerging Market Bond Index and MSCI Frontier Markets Index could buoy investor sentiment in the months to come.
Naira’s Fair Value and Market Outlook
CSL’s valuation models estimate the naira’s fair value at N1,647/$, marginally down from the previous estimate of N1,687/$. While these models are long-term focused, the firm expects the naira to trade within the N1,500–N1,600/$ range in H2 2025, provided FX inflows improve.
Conversely, without a meaningful boost in oil earnings, FDI, or access to external funds, the currency defence approach could face scrutiny within 6–12 months.
Economic Indicators Signal Mixed Trends
On a macroeconomic level, CSL revised Nigeria’s 2025 GDP growth projection downward to 3.7% from 3.9%, citing weak consumer spending and export performance. Inflation is expected to average 22.9% for the year—down from 31.4% in 2024—driven by improved exchange rate stability and favourable base effects.
However, the 2025 budget deficit is projected to rise to 5.8% of GDP, above the official 3.9% estimate, due to shortfalls in both oil and non-oil revenues. As a result, increased domestic borrowing is anticipated in the second half of the year.
External Reserves Dip by $3.67bn
According to CBN data, Nigeria’s gross external reserves fell from $40.88 billion in January to $37.21 billion by the end of June 2025—a $3.67 billion drop. This contrasts sharply with the $1.17 billion increase recorded during the same period in 2024.
Analysts attribute the reserve drawdown to sustained CBN interventions, external debt servicing obligations, and weaker-than-expected oil and remittance inflows.
Experts Weigh In on CBN’s Strategy
Economic experts largely support the CBN’s interventionist approach. Economist Adewale Abimbola noted that Nigeria still relies on a managed float exchange rate regime and is not ready to let market forces fully dictate the naira’s value.
“We are not yet at a point where the naira can stand on its own without regulatory support,” he said. “More needs to be done to strengthen non-oil FX sources like agriculture and manufacturing.”
Data from the CBN revealed that the naira strengthened to N1,518/$ on July 15, marking its best performance since mid-March and signalling growing investor confidence. Market analysts at Anchoria Limited and Cowry Assets projected continued naira stability within the 1515–1535/$ range, bolstered by improved FX liquidity, targeted interventions, and successful OMO auctions.
A Shift from Past Regimes
Arthur Stevens Asset Management CEO, Olatunde Amolegbe, stated that current interventions reflect a more functional FX market under Governor Yemi Cardoso compared to the previous administration.
“CBN’s role in ensuring price stability is critical. Stability is what attracts investment,” he added.
Teslim Shitta-Bey of Proshare echoed this view, warning against excessive interventions but acknowledging Nigeria’s improved reserve position. “We now have a bit more room to intervene—unlike under Emefiele when net reserves were near $4bn,” he said.
Private Sector Responds
Segun Kuti-George, Vice President of the Nigerian Association of Small-Scale Industrialists, praised the intervention as necessary, stating, “No responsible central bank lets market forces determine currency value without safeguards.”
He noted that the $4.1 billion injection—about 11% of the country’s estimated $36 billion H1 inflows—was both proportionate and timely. “This stability allows businesses to plan effectively, reducing uncertainty and volatility.”
Centre for the Promotion of Private Enterprise CEO, Muda Yusuf, and ASBON President, Dr Femi Egbesola, also supported the CBN’s actions. Both emphasised that while structural reforms are needed for long-term FX sustainability, the interventions provided short-term relief and a measure of predictability for businesses.
Conclusion
As the CBN continues its efforts to defend the naira, experts agree that a balanced strategy is essential—one that combines tactical market intervention with long-term structural reforms. While the short-term impact has been relatively positive, sustainable stability will depend on improved FX inflows, economic diversification, and prudent fiscal management.
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