January 2025 saw a notable increase in Nigeria’s exchange rate, which closed at N1,474.78 per dollar on January 31 at a gain of N63.72 against the dollar.
Data from the Central Bank of Nigeria and the FMDQ Securities Exchange Limited show that this 4.14 percent increase puts the local currency at its highest level in seven months. The last time the currency traded at this level was on June 11, 2024, when it was trading at N1,473.88/$ on the official market.
Policies put in place by the CBN have been blamed for the steep rise, which has affected market dynamics and strengthened the currency.
At the NFEM, authorized currency traders gave quotes for the dollar that ranged from N1,495.01/$ to N1,447.50/$.
On January 2, 2025, the naira began the year at N1,538.50/$ and continued to appreciate throughout the month.
Before ranging within a range that saw it reach N1,560/$ on January 16, marking its highest point for the month, it had marginally declined to N1,535.00 by January 3.
But starting in the third week of January, the currency began to appreciate more steadily, closing at N1,531/$ on January 24 and then rising to N1,520/$ on January 28.
It kept rising, reaching N1,474.78/$ on the final trading day of January after ending at N1,506/$ on January 29 and N1,493/$ on January 30.
The naira also strengthened against the US dollar in the parallel market on Friday, ending at N1,610/$, up N20 in a single day from N1,630/$ on Thursday.
The influence of recent monetary and foreign exchange policies implemented by the CBN to stabilize the currency and boost market confidence is seen in this most recent movement.
A major factor in this development has been the launch of the Electronic Foreign Exchange Matching System in December 2024.
The platform ensures openness and effective price discovery in the foreign currency market by enabling authorized dealers to place anonymous orders into a central limit order book through Bloomberg’s BMatch system.
This arrangement has made it simpler to control exchange rate swings by lowering market distortions and giving the CBN better supervisory powers.
The Nigeria Foreign Exchange Code, which was introduced on January 28, 2025, is another significant element contributing to the recent strengthening of the naira.
“A new era of accountability and compliance is ushered in by the FX Code. This is an enforceable structure, not merely a list of suggestions. At the FX Code unveiling, CBN Governor Olayemi Cardoso stated that infractions would result in fines and administrative measures under the CBN Act 2007 and the BOFIA Act 2020.
Principles for moral behavior, governance, execution, information exchange, risk management, and settlement procedures among market players are established under the FX Code.
The program has improved investor trust and helped the currency’s performance in recent years by bringing Nigeria’s foreign exchange operations into line with international best practices.
The difficulties that had continued in the foreign exchange market were reflected in the naira’s December 31 value of N1,535.00 per dollar at the end of 2024.
Nonetheless, the apex bank’s early 2025 policy changes have stabilized the market and enabled the currency to gain a lot of ground in the last month.
currency rates now more accurately reflect real market conditions because to the foreign currency system’s increased transparency, which has also decreased speculative activity.
Nigeria’s foreign exchange reserves saw a sharp drop in January 2025, falling by $1.11 billion over the month, despite the local currency’s improvement.
The CBN said that the nation’s reserves had dropped from $40.88 billion on January 2 to $39.77 billion on January 30.
This indicates a 2.72 percent drop in just one month.
Reserves have decreased as a result of capital outflows, external debt servicing commitments, and continuous CBN interventions in the foreign exchange market.
The decline in reserves appears to indicate that the CBN may have used some of its foreign exchange reserves to stabilize the local currency and control liquidity in the official market, even though the naira saw a large increase in value that same month.
Reserves were still above the $40 billion threshold at the beginning of January; on January 2, they recorded $40.88 billion, and during the first part of the month, they fluctuated within that range.
Reserves reached a peak of $40.96 billion on January 6 and then started a slow fall, reaching $40.75 billion by January 10.
Reserves fell to $40.42 billion at the middle of the month on January 15 and then to $40.05 billion on January 22.
For the first time in months, reserves dropped below $40 billion in the final week of January, reaching $39.99 billion on January 23 and $39.77 billion by January 30.
The steady decline in foreign currency reserves, which are at a three-month low, suggests increased demand for foreign exchange and potential monetary policy actions to preserve exchange rate stability.
The recent loss is comparable to the notable decline that occurred in April 2024, when reserves fell by $2.16 billion in just 29 days.
Instead of using measures to stabilize the naira, Cardoso at the time blamed the drop on debt repayment and other financial commitments.
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