
In January 2025, Nigeria’s exchange rate experienced a significant improvement, with the naira gaining N63.72 per dollar to close at N1,474.78 on January 31.
This 4.14% appreciation marked the highest level reached in seven months, with the previous comparable rate recorded on June 11, 2024, at N1,473.88 per dollar in the official market, according to data from the FMDQ Securities Exchange Limited and the Central Bank of Nigeria (CBN).
Gradual Appreciation Throughout January
The naira’s upward movement was evident from the start of the year. On January 2, 2025, the naira opened at N1,538.50 per dollar. It dipped slightly to N1,535.00 on January 3, then fluctuated within a range during the first half of the month. The currency even reached a high of N1,560 per dollar on January 16 before beginning a sustained appreciation. In the latter part of the month, the naira closed at N1,531 per dollar on January 24, further strengthened to N1,520 per dollar on January 28, and ultimately settled at N1,474.78 per dollar on the final trading day.
In the parallel market, similar trends were observed. The naira closed at N1,610 per dollar on Friday, down from N1,630 per dollar on Thursday—a N20 improvement in just one day. Such movements highlight the impact of recent monetary and foreign exchange measures implemented by the CBN to stabilize the currency and enhance market confidence.
Policy Interventions Driving the Appreciation
The notable strengthening of the naira has been largely attributed to strategic policy interventions by the CBN. One major initiative is the Electronic Foreign Exchange Matching System, introduced in December 2024 through Bloomberg’s BMatch platform. This system allows authorized dealers to submit anonymous orders into a central limit order book, ensuring transparency and efficient price discovery while reducing market distortions. By enhancing the oversight capabilities of the CBN, the platform has contributed to a more controlled and predictable forex market.
Additionally, the launch of the Nigeria Foreign Exchange Code on January 28, 2025, has further reinforced market integrity. CBN Governor Olayemi Cardoso explained that the FX Code is not merely advisory but represents an enforceable framework under the CBN Act 2007 and the BOFIA Act 2020. Under this framework, breaches will incur penalties and administrative actions. The FX Code sets out principles for ethical conduct, governance, execution, risk management, information sharing, and settlement processes among market participants. By aligning Nigeria’s foreign exchange operations with global best practices, the initiative has boosted investor confidence and contributed to the improved performance of the naira.
Decline in Foreign Exchange Reserves
Despite the naira’s appreciation, Nigeria’s foreign exchange reserves experienced a significant decline in January 2025. Data from the CBN indicate that reserves fell by approximately $1.11 billion during the month—from $40.88 billion on January 2 to $39.77 billion on January 30—representing a 2.72% decrease. This reduction appears to be the result of ongoing CBN interventions in the forex market, combined with external debt servicing obligations and capital outflows.
During the first half of January, reserves fluctuated around the $40 billion mark, peaking at $40.96 billion on January 6 before beginning a gradual decline. By mid-month, reserves had dropped to $40.05 billion, with the most pronounced decreases occurring in the final week, when levels fell below $40 billion for the first time in several months. This steady drawdown suggests that the CBN may have deployed part of its FX stockpile to maintain exchange rate stability and manage liquidity in the official market.
Balancing Stability and Liquidity
The improvements in the naira’s value reflect the positive impact of enhanced transparency and targeted policy interventions. However, the concurrent decline in foreign exchange reserves raises concerns about potential liquidity pressures. The situation is reminiscent of a similar drop in April 2024, when reserves plunged by $2.16 billion over 29 days—a period during which the decline was attributed primarily to debt servicing and other financial commitments rather than market stabilization efforts.
Moving forward, policymakers face the challenge of sustaining the naira’s strength while ensuring that foreign exchange reserves remain at healthy levels to support liquidity and buffer against external shocks. As Nigeria navigates complex domestic and global economic conditions, future strategies will likely need to strike a careful balance between currency stabilization and reserve management.
In summary, while the naira’s appreciation in January 2025 underscores the effectiveness of the CBN’s recent initiatives, the accompanying decline in reserves highlights the ongoing challenges of managing a volatile foreign exchange environment. Continued policy vigilance and strategic interventions will be crucial for maintaining both currency strength and financial stability in the months ahead.