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Naira Strengthens Amid Forex Market Gains, Analysts Warn
The naira hits a two-year high on the official market as FX interventions improve liquidity. Analysts warn of possible foreign portfolio exits later in 2026 amid rising investor gains and upcoming elections.
Naira Strengthens Amid Forex Market Gains
By Juliet Ezeh | Lagos
The naira has surged to one of its strongest levels in nearly two years, supported by improved liquidity in the official foreign-exchange market. Analysts warn, however, that rising foreign portfolio inflows may trigger profit-taking later in 2026.
According to a macroeconomic update by CardinalStone, the official naira appreciated by 6.9 per cent year-to-date, trading at N1,347.78/$ on Monday. Despite gains in the official market, the parallel market premium narrowed from 5.7 per cent to roughly 3.2 per cent following renewed interventions by the Central Bank of Nigeria (CBN).
FX Interventions Ease Market Pressures
The CBN recently allowed licensed Bureau de Change operators to access foreign exchange via authorised dealers, with weekly purchase limits of $150,000 per BDC and mandatory sale of unused balances within 24 hours. Cash transactions were capped at 25 per cent of total FX trades.
CardinalStone noted that although potential supply from 82 licensed BDCs could reach $50 million monthly, it remains far below pre-COVID levels of over $1 billion monthly. Nonetheless, the additional supply has reduced speculative demand, channeling most corporate FX needs to the official window and easing retail market pressures.
Foreign Portfolio Inflows Pose Exit Risks
Nigeria remains an attractive destination for foreign portfolio investors due to high carry trade returns. Analysts estimate outstanding foreign portfolio positioning at $12–$14 billion.
“Investors who entered the market at N1,500/$ could realise FX gains of over 22 per cent if the naira strengthens to N1,200–N1,250/$,” the report stated. “Such gains may increase the risk of portfolio exits, particularly with election-related uncertainties in the second half of 2026.”
Monetary Policy Outlook
Ahead of the CBN’s Monetary Policy Committee meeting, indicators send mixed signals. Inflation is moderating and short-term rates hover around 22 per cent, below the 27 per cent MPR. At the same time, liquidity management remains a key concern, with N10.9 trillion issued via Open Market Operations so far this year.
CardinalStone predicts a 60 per cent probability that the CBN will hold the policy rate constant, while adjusting the asymmetric corridor to align SDF rates with OMO yields. Analysts also see a 40 per cent chance of a 50–100 bps rate cut.
Forward Guidance Signals Weaker Naira Later
Forward-market pricing suggests the naira may weaken later in 2026. Six-month non-deliverable forwards indicate a rate around N1,449.96/$, with CardinalStone’s base-case range set at N1,350–1,450/$.
Analysts advise investors to monitor liquidity conditions, FX interventions, and foreign portfolio flows as key drivers of the naira’s trajectory through the year.
Juliet Ezeh is the founder and chief reporter at Westbridge Reporters with over 7 years of experience in journalism. She covers crime, industry, policy, and social developments, delivering timely and accurate reporting.