Nigeria’s currency, the naira, began the week on a shaky note as it continued to depreciate against the United States dollar across both official and parallel foreign exchange markets, further amplifying concerns over persistent currency volatility despite recent improvements in external reserves.
Data released by the Central Bank of Nigeria (CBN) on Monday, May 6, showed that the naira weakened at the official foreign exchange market to N1,605.62 per dollar, compared to the N1,602.18 it closed at on Friday, May 3. This represents a depreciation of N3.44 in just one trading day, signaling renewed pressure on the local currency.
In the parallel market—commonly referred to as the black market—the naira also suffered a setback, falling by N5 to trade at N1,610 per dollar on Monday, down from N1,605 at the end of the previous week. This widening gap between the official and parallel market rates has sparked renewed concerns among traders, importers, and currency speculators.
FX Market Reacts to Liquidity Pressures
Market analysts believe the depreciation is linked to a combination of declining foreign exchange liquidity, increasing demand for dollars, and speculative trading. The start of the new month typically triggers heightened FX demand from businesses settling import bills, school fees, and travel expenses.
“Foreign exchange demand usually peaks in the early part of the month,” said Kehinde Adetiba, a Lagos-based financial analyst. “When supply fails to meet this spike in demand, it exerts downward pressure on the naira. What we are seeing is a reflection of that seasonal effect, compounded by structural challenges in Nigeria’s FX market.”
Despite various interventions by the apex bank aimed at stabilizing the currency—including clearing FX backlogs and increasing supply to commercial banks—currency watchers say market confidence is still fragile.
CBN Reports Growth in External Reserves
In a potentially reassuring development, the CBN confirmed that Nigeria’s external reserves have risen to $38.8 billion in 2024, marking a notable recovery that could boost the central bank’s ability to defend the naira. However, experts argue that reserve accumulation alone may not be sufficient to achieve exchange rate stability in the absence of strong and sustained capital inflows.
“The improvement in external reserves is a good sign and could help the CBN support the naira through targeted interventions,” said Chika Uba, an economist at the University of Abuja. “But unless the underlying issues—such as low exports, high imports, and limited foreign investment—are addressed, the naira will remain vulnerable.”
Uba added that speculative activities in the informal market are feeding into the depreciation spiral. “The speculative trading around the naira-dollar rate at the black market is becoming self-reinforcing, and it’s undermining the progress we’ve seen in reserves.”
Exchange Rate Management Still a Major Policy Headache
The latest decline comes at a time when the Bola Ahmed Tinubu administration and the CBN under Governor Olayemi Cardoso have committed to implementing market-driven reforms to attract foreign investment and stabilize the economy.
Earlier in the year, the CBN had allowed greater flexibility in exchange rate determination by unifying the multiple exchange rates and adopting a managed float system. While this move initially led to sharp depreciation, the FX market had shown signs of stabilizing in recent weeks until the latest reversal.
Some stakeholders argue that the policy direction remains sound, but implementation must be accompanied by adequate transparency, regular FX supply, and tighter monetary policy.
“Market confidence will only be sustained if participants believe that the rules are clear and that the CBN has the capacity to intervene when necessary,” said Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE). “Investors need to see that the currency is not only market-determined but also adequately supported by fundamentals.”
Implications for the Nigerian Economy
A weaker naira has wide-ranging consequences for the Nigerian economy. It increases the cost of imports, fuels inflation, affects pricing for manufacturers dependent on imported raw materials, and erodes the purchasing power of ordinary Nigerians. The current depreciation threatens to reverse some of the marginal gains recorded in recent months in curbing inflation and stabilizing food and energy prices.
Already, inflation in Nigeria is hovering around 33.2 percent as of March 2025, with food inflation even higher. Economists warn that continued pressure on the naira could see inflation spike further, hurting households and businesses alike.
“Imported inflation is real,” said Ifeoma Anya, a policy analyst at the Nigerian Economic Summit Group. “Every time the naira weakens, the cost of goods, especially imported products, goes up. It makes the economy more difficult for average Nigerians.”
Calls for Broader Economic Reforms
Experts are calling on the federal government to complement monetary policies with broader structural reforms that promote non-oil exports, boost productivity, and improve Nigeria’s trade balance. The country remains heavily reliant on crude oil exports for over 90% of its foreign exchange earnings, making it vulnerable to oil price fluctuations and external shocks.
“The naira’s long-term strength will depend on how well we diversify the economy,” Anya added. “Investing in agriculture, manufacturing, and services that generate FX is key.”
Conclusion: Market Awaits Stabilization Measures
As the week progresses, traders and investors will be watching closely for any response from the Central Bank. Some market participants expect renewed intervention through dollar sales to authorized dealers or other liquidity-boosting mechanisms.
For now, the naira’s depreciation continues to test the resilience of recent reforms and underscores the urgency of restoring investor confidence. With external reserves on the rise, the ball is now in the court of monetary and fiscal policymakers to translate this advantage into real and sustained currency stability.
