The Central Bank of Nigeria (CBN) has significantly narrowed the exchange rate gap between the official and parallel markets, with the naira closing at N1,536/$ in the official market and N1,570/$ in the parallel market, a difference of just N34/$. This achievement is driven by a surge in foreign exchange (FX) inflows, reaching nearly $6 billion monthly since May 2025, bolstered by CBN reforms and rising oil prices, according to industry reports.
Robust FX Inflows Fuel Market Stability**
In May 2025, Nigeria’s FX market saw inflows soar by 62% month-on-month to $5.96 billion, one of the highest levels in recent months. Analysts at Financial Derivatives Company Limited attribute this to increased participation from domestic and foreign investors, supported by higher oil prices and CBN initiatives to diversify inflow channels. These include new financial products to boost diaspora remittances, licensing additional International Money Transfer Operators (IMTOs), adopting a willing buyer-willing seller FX model, and improving naira liquidity access for IMTOs.
The CBN’s efforts align with its goal of doubling formal remittance receipts, currently estimated at $23 billion annually, within a year. Charlie Bird, Director of Trading at Verto, speaking at a Cordros Asset Management seminar, noted that improved dollar liquidity has made Nigeria an attractive destination for foreign investors. “The CBN’s reforms have balanced liquidity dynamics, enabling foreign investors and airlines to repatriate funds with confidence,” he said.
CBN’s Strategic Reforms**
Under Governor Olayemi Cardoso, the CBN has implemented sweeping reforms to address a $7 billion backlog in FX obligations and unify Nigeria’s fragmented exchange rate regime, which previously encouraged arbitrage. Key measures include the introduction of an electronic FX matching system to enhance transparency and the clearance of outstanding FX commitments, boosting business confidence. The CBN’s revised guidelines for International Money Transfer Services, released recently, aim to streamline remittance flows by ensuring licensed IMTOs have timely access to naira liquidity for disbursements.
### **Net FX Reserves Surge**
The CBN reported a net FX reserve position of $23.11 billion by the end of 2024, the highest in over three years, up from $3.99 billion in 2023, $8.19 billion in 2022, and $14.59 billion in 2021. Gross external reserves also rose to $40.19 billion from $33.22 billion in 2023. This growth reflects a strategic reduction in short-term FX liabilities, such as swaps and forwards, alongside increased non-oil FX inflows. Cardoso emphasized that these improvements are “deliberate policy choices aimed at rebuilding confidence and reducing vulnerabilities.”
Despite seasonal adjustments in Q1 2025, including significant interest payments on foreign debt, reserves are expected to continue rising in Q2, supported by improving oil production and non-oil export growth. The CBN’s focus on prudent reserve management and market-driven reforms aims to ensure long-term stability.
### **Outlook for Continued Progress**
The narrowing exchange rate gap and rising reserves signal a strengthening macroeconomic environment. The CBN anticipates further reserve growth, driven by enhanced oil output and a supportive export environment. By maintaining transparency and robust banking reforms, the CBN aims to sustain investor confidence, stabilize the naira, and bolster Nigeria’s resilience against external shocks.
