The Nigerian naira has surged to its strongest position in nearly a year, buoyed by an influx of foreign exchange (FX) inflows from remittances and portfolio investors. As of last week, the naira gained 0.72 percent, rising by N10.5 to close at 1,455.17/$ in the official market, marking its strongest performance since December 2024, according to data from the Central Bank of Nigeria (CBN).
At the parallel market, the local currency also strengthened by 0.88 percent to settle at 1,475/$, supported by improved liquidity across the FX market. The foreign exchange market had witnessed mixed performance during the week, initially beginning on a bearish note due to early demand pressures as foreign portfolio investors exited the market. However, mid-week saw a shift in sentiment as strong foreign inflows emerged, particularly from foreign portfolio investors (FPIs) sourcing naira to meet local fixed-income obligations.
Industry analysts remain optimistic about the naira’s short-term stability. AIICO Capital noted that “the naira is likely to remain stable in the near term, supported by improved US dollar supply and external reserves.” Similarly, Cowry Assets Management Ltd highlighted that better foreign exchange inflows have helped alleviate demand pressure, thus contributing to the naira’s recent strength.
Despite this positive outlook, challenges still loom. Cowry Assets warned that “rising import demand or weaker dollar inflows could slow further gains.” Oil prices, which remain under pressure due to a higher global supply, also present a potential obstacle, though a rebound in global demand could provide some support to Nigeria’s external earnings and the overall FX market stability.
Another factor underpinning the naira’s strength is Nigeria’s rising external reserves, which increased to $42.57bn, aided by inflows from oil sales, remittances, and portfolio investments. This increase provides the CBN with more leverage to manage short-term market pressures and supports the expectation of continued naira stability.
The FX market’s positive trajectory also saw Nigeria receiving some encouraging news from the global financial community. In its September 2025 semi-annual country classification review, global index provider FTSE Russell added Nigeria to its “Watch List.” This reclassification signals that Nigeria could soon achieve “Frontier Market” status, a significant milestone in attracting international investment.
FTSE Russell’s decision was influenced by recent improvements in FX liquidity, particularly as market participants reported no significant delays in foreign capital repatriation—a sharp contrast to the delays that plagued Nigeria’s FX market in 2023. Nigeria had been moved to the “Unclassified” category in September 2023 due to these issues.
FTSE Russell stated that the market would now enter a period of formal observation, with the potential for an upgrade in the next annual review cycle, expected in March 2026. This move is seen as a positive development for Nigeria’s FX market, as it opens the door for increased foreign portfolio investment.
The re-entry of Nigeria into the watchlist has analysts at Meristem Securities excited about future inflows. “This shift repositions Nigeria back on the investment radar for global funds that benchmark against the FTSE,” they noted. The potential reclassification could lead to significant inflows of foreign capital, which would further support the naira and liquidity in the FX market.
However, the long-term success of this reclassification will depend on Nigeria’s ability to maintain its market-driven economy and sustain the positive momentum established by recent policy reforms. As Meristem Securities analysts emphasized, “active funds will begin pre-positioning to capture the upside ahead of the formal re-entry, while passive funds will prepare for mandatory future allocations.”
In the short term, the anticipation of capital inflows is expected to fuel market optimism, which could lead to further appreciation of the naira. The next year promises to be pivotal for the currency as investors await confirmation of the potential upgrade.
Overall, the combination of strong foreign exchange inflows, increased external reserves, and the reclassification by FTSE Russell sets a positive stage for the naira. Both AIICO Capital and Cowry Assets Management foresee continued stability for the currency, with AIICO projecting that “the naira will remain stable in the near term, supported by improved liquidity and dollar supply.”
