Naira Gains Strength As Forex Speculators Face Heavy Losses

The naira has continued to show stability in the foreign exchange market, causing concern among speculators who have suffered significant losses. Despite a 3.2% month-on-month decline in Nigeria’s external reserves, which stood at $38.46 billion at the end of February, the naira appreciated by 8.5% on the parallel market, trading at 1,490/$ during the same period.

At the Nigerian Foreign Exchange Market, the local currency has gained 2.69% this year, reaching 1,499.23/$, although it recorded a slight decline of 1.7% in February, closing at 1,500/$ in the official market.

This rise in the naira has put pressure on foreign exchange speculators, with analysts estimating that they lost about N10 billion last month due to market fluctuations.

READ ALSO: Naira Holds Steady As Forex Market Sees Increased Transparency

CBN’s Policies Tighten the Market for Speculators

The Central Bank of Nigeria (CBN) has intensified its efforts to stabilise the naira, making speculative trading more difficult. One of the key measures introduced was the Nigerian Foreign Exchange Code, which promotes transparency and ethical conduct in the forex market. This policy, combined with other interventions, has restricted the ability of speculators to manipulate the Naira.

According to forex analyst Michael Nwadike, investors holding dollars have begun to experience losses as the naira strengthens. He advised those who have saved in foreign currencies to reconsider their strategies, as the market is shifting in favour of the local currency.

Nwadike also suggested that authorities should adopt more market-friendly policies to encourage foreign investments in naira assets, ensuring longer-term capital flows rather than short-term speculative money.

Forex Market Sees Shift as Naira Gains Stability

The introduction of the Electronic Foreign Exchange Matching System (EFEMS) has significantly impacted forex trading in Nigeria. The system has helped eliminate distortions in the forex market, ensuring a fairer price discovery process for the Naira.

Forex trader Olakunle Amos, based in Lagos, noted that the stability of the naira benefits the economy but has been a major setback for speculators. “This is not the time to hoard dollars, as the naira is quickly regaining its value,” he said.

A retired CBN director, Professor Jonathan Aremu, described the strengthening of the naira as a positive sign for the economy. However, he stressed the need for increased local production to sustain the currency’s appreciation. He urged policymakers to focus on economic productivity rather than relying solely on monetary policies.

CBN Works to Improve Forex Liquidity

The President of the Association of Bureaux De Change Operators of Nigeria, Aminu Gwadabe, acknowledged that the CBN has been actively addressing both the demand and supply sides of the forex market. He pointed out that the central bank has taken steps to boost forex inflows and manage the rising demand for foreign exchange, particularly for tuition, medical bills, and manufacturing needs.

CBN Governor Olayemi Cardoso emphasised that the EFEMS initiative is part of a broader effort to unify exchange rates and eliminate speculative trading. He highlighted that monthly remittances have doubled from an average of $300 million in 2023 to nearly $600 million by August 2024.

Cardoso also stated that the current exchange rate does not accurately reflect the naira’s true market value. He noted that the rates seen today are driven by desperate buyers rather than market fundamentals. He expects EFEMS to correct these distortions and improve price transparency in the forex market.

Impact of Inflation and Economic Policies

Inflation remains a critical issue for Nigeria’s economy. According to Comercio Partners’ 2025 macroeconomic outlook, Nigeria’s rebasing of the Consumer Price Index to 2024 has created statistical effects that could lower inflation figures. In January, inflation dropped to 24.48%, showing signs of moderation.

Comercio Partners highlighted that the stabilisation of exchange rates, subsidy removal, and improved forex liquidity could help achieve price stability within the year. Additionally, the expansion of local refining capacity, particularly with the launch of the Dangote Refinery, is expected to reduce the impact of forex volatility on energy prices.

The report suggested that relying more on locally refined petroleum would lower production and transportation costs, creating a ripple effect across the economy. According to Comercio Partners’ head of investment research, Ifeanyi Ubah, inflation could decrease to around 15% by mid-2025, indicating a gradual return to economic stability.

IMF’s View on Dollarization in Nigeria

The International Monetary Fund (IMF) has weighed in on the trend of holding savings in foreign currencies. The IMF noted that in countries with high inflation and currency volatility, individuals often shift their savings to dollars. However, reversing this trend can be difficult, even after stabilising the local currency.

The IMF explained that in many economies, the dollar remains the preferred currency for international trade and financial transactions. Despite this, the Nigerian government’s policies aim to strengthen the Naira and reduce the dependence on foreign currencies.

Outlook for the Naira

The CBN’s monetary policies, coupled with increasing foreign exchange inflows, are expected to further strengthen the naira. The government’s focus on improving economic productivity and stabilising inflation will also play a key role in sustaining these gains.

While challenges remain, including inflationary pressures and external economic factors, the current trajectory suggests that the Naira will continue to stabilise, benefiting businesses and consumers alike.

With the forex market becoming more transparent and speculative trading opportunities diminishing, the era of excessive volatility in Nigeria’s foreign exchange market may be coming to an end.