Nigeria’s Forex Market: Why the Naira-Dollar Gap is Narrowing

Key Exchange Rates (October 2, 2025)

Understanding the Nigerian FX Landscape

Nigeria’s foreign exchange market has long been characterized by multiple exchange rate windows. While the NFEM (official) rate is determined by volume-weighted averages of interbank transactions, the parallel market often caters to individuals and businesses unable to access foreign exchange directly from banks.

The existence of both markets has fueled debates around transparency, speculation, and distortions in FX pricing. Recent months have seen authorities attempt to narrow gaps, but structural demand-supply imbalances continue to challenge such efforts.

Why the Naira Remains Fragile

Despite a relatively narrow gap between the two markets, analysts maintain that the naira’s position remains precarious. Several factors contribute to this fragility:

• Demand pressures: Importers, students paying tuition abroad, and travellers seeking foreign currency still exert heavy demand on the system.
• Inadequate FX supply: Nigeria relies heavily on crude oil earnings, yet global oil price volatility and production constraints have limited inflows.
• Diaspora remittances: These provide relief but are inconsistent and often seasonal.
• Policy uncertainty: Businesses and investors demand clearer signals from the Central Bank of Nigeria (CBN) and the federal government regarding exchange-rate policy.

What Traders Are Saying

Dealers contacted by NewsWay Business Desk emphasised the following:

• Importers remain the largest demand-side players in the parallel market.
• Students and travellers account for a significant share of informal FX transactions, often due to limited access to the NFEM.
• Banks and authorised dealers continue to manage corporate transactions through the NFEM, reinforcing its role as the formal window.
• Skepticism persists: many market participants note that unless Nigeria strengthens non-oil exports and improves investor confidence, the naira’s current calm may be short-lived.

CBN’s Role in Stabilising the Market

The Central Bank of Nigeria has engaged in targeted interventions to stabilise FX supply and dampen intraday volatility. These interventions include:

• Liquidity injections in the interbank market.
• Special allocations for critical sectors such as aviation, health and manufacturing.
• Monitoring and compliance enforcement to deter speculation and round-tripping.

While these measures provide short-term relief, most analysts argue that they are not sustainable without broader reforms that expand FX earning capacity across the economy.

Global Factors Shaping the Naira

The international environment also plays a significant role in determining Nigeria’s currency trajectory:

1. US dollar strength: The dollar was broadly steady in international trade, helping to cushion some emerging-market pressure.
2. Commodity prices: Oil remains Nigeria’s principal export; declines in global oil prices directly affect FX inflows.
3. Capital flows: Portfolio investors remain cautious about Nigeria due to policy inconsistencies, security concerns and inflationary pressures.

Chart: Naira Exchange Rate Movement (Sept–Oct 2025)

Expert Opinions

“The narrowing spread is encouraging, but it does not signify stability. Nigeria must deepen FX liquidity and encourage export diversification.”– Dr. Bismarck Rewane (economist)

“Most corporate clients are still relying on NFEM, but individuals remain locked out. That keeps the parallel market alive.” – Mary Uche (currency trader)

CBN officials speaking on condition of anonymity told NewsWay that interventions will continue to be strategic, but that the long-term objective remains a self-sustaining FX market that supports trade and investment.

Comparing the Naira to Other African Currencies

Implications for Businesses and Households

The delicate state of the naira has direct implications across the economy:

• Importers may face relative price stability in the short term, but supply-chain risks remain.
• Households will likely feel imported-goods inflation pressures, impacting cost of living.
• Investors remain cautious, often delaying large capital commitments until policy clarity improves.

Policy Recommendations

Economists and market strategists propose practical steps to strengthen the naira and harden the FX market against shocks:

• Boost non-oil exports through targeted incentives and infrastructure support.
• Expand and formalise diaspora remittance channels using digital rails to capture more inflows.
• Provide clear, consistent policy signals on FX unification and capital controls.
• Encourage domestic production to reduce import dependency, especially for consumer staples and intermediate goods.
• Reinforce foreign-reserve accumulation strategies to give the CBN more intervention capacity when needed.

The Nigerian naira’s performance on Thursday underscores a fragile stability, with only a modest spread of ₦7 between the official NFEM and the parallel market. While this narrower gap suggests partial convergence, it does not eliminate the structural problems that have long dogged Nigeria’s FX architecture.

For a durable path to stability, Nigeria will need sustained inflows, stronger non-oil export growth, and predictable policy frameworks that build investor confidence. Until then, households, businesses and foreign investors will monitor daily movements cautiously balancing cautious optimism with the reality of a complex FX landscape.