Nigeria’s foreign exchange market has continued to show signs of stability, with the naira remaining below the ₦1,400/$ mark despite declining global crude oil prices. The resilience has been driven by the Central Bank of Nigeria’s (CBN) tight monetary policy, stronger external reserves, and improved crude oil production.
After a period of sharp depreciation and exchange rate volatility between 2024 and early 2025, the naira has regained relative stability, with the official exchange rate hovering around ₦1,370 to the dollar. The improved performance has largely been supported by increased foreign portfolio inflows, which have boosted dollar liquidity in the market.
Market analysts project that the naira will remain broadly stable throughout the rest of 2026, forecasting an exchange rate of between ₦1,350 and ₦1,520 per dollar, provided current economic reforms and foreign exchange policies are maintained.
A key factor supporting the currency is Nigeria’s growing external reserves, which have increased from about $45.5 billion in 2025 to approximately $51 billion. The stronger reserve position has enhanced the CBN’s ability to intervene in the foreign exchange market and protect the naira from speculative pressures.
The apex bank has also sustained a tight monetary policy, retaining the Monetary Policy Rate (MPR) at 26.67 per cent. The high interest rate environment has made Nigerian fixed-income instruments, including Treasury Bills and Open Market Operation (OMO) bills, attractive to foreign investors seeking higher yields.
These investments have continued to improve foreign exchange inflows and support exchange rate stability, although analysts note that the elevated interest rate regime has also increased borrowing costs for businesses and households.
Inflation has eased considerably from levels above 30 per cent, with forecasts from PwC, United Capital and LEAF projecting average inflation to range between 15 per cent and 23.8 per cent in 2026. Despite the moderation, the high cost of food and other essential goods continues to put pressure on household purchasing power.
Nigeria’s broader economic outlook has also improved, with Gross Domestic Product (GDP) growth projected at between 4.0 and 4.4 per cent. The expected growth is being supported by increased crude oil production, which has averaged about 1.48 million barrels per day.
However, analysts caution that the naira’s medium-term performance will depend more on Nigeria’s oil production levels than on international crude oil prices, which have softened to around $70 per barrel for Brent crude.
They also observed that a sizeable portion of Nigeria’s crude production had already been committed through forward sales, limiting the immediate foreign exchange benefits from higher production volumes.
According to analysts, Nigeria could attract additional foreign portfolio investment if major advanced economies begin lowering interest rates, encouraging investors to shift more capital into frontier markets implementing structural reforms.
On the global front, the US Dollar Index, which tracks the performance of the dollar against six major currencies, strengthened to around the 101-point level during Asian trading on Monday. The dollar remained firm despite easing inflationary pressures following the normalisation of oil shipments through the Strait of Hormuz, as investors continued to monitor the outlook for United States monetary policy.
Data from the CME FedWatch Tool indicate that markets are assigning a 77.3 per cent probability that the US Federal Reserve will maintain its restrictive monetary policy through the end of the year.
Investors are also awaiting the release of the US Institute for Supply Management (ISM) Services Purchasing Managers’ Index and the minutes of the Federal Reserve’s June policy meeting for further signals on the direction of interest rates.
Meanwhile, weaker-than-expected US labour market data have strengthened expectations that the Federal Reserve may begin cutting interest rates later this year. US Nonfarm Payrolls rose by just 57,000 jobs last month, significantly below market expectations of 110,000, although the unemployment rate edged down to 4.2 per cent from 4.3 per cent.
Analysts believe that a weaker US dollar resulting from lower interest rates could create additional opportunities for capital inflows into emerging and frontier markets, including Nigeria, further supporting the stability of the naira.
