Why the Naira Is Gaining Strength Despite Falling Reserves and Oil Prices
Written by Okafor Joseph Afam | SpringnewsNG Media Limited | Tel: +234 703 949 0464 | Email: springnewsng@gmail.com | July 10, 2025
Naira Surprises with Strong Gains Despite Declining Reserves and Weak Oil Market
Against all odds, the Nigerian naira has posted surprise gains in both the official and parallel markets—despite a drop in external reserves, falling crude oil prices, and the high demand associated with the summer travel season.
Latest figures from the Central Bank of Nigeria (CBN) show that the country’s foreign reserves dropped by 8.8 percent year-to-date, falling from $40.88 billion in January 2025 to $37.28 billion as of July 8. At the same time, Bonny Light crude—Nigeria’s primary export—lost 14.5 percent in value during the first quarter, dipping from $80.76 per barrel in January to $69.07 in April, before recovering slightly to $78.62.
Crude oil production also slid by 3.2 percent, with output falling from 1.54 million barrels per day in January to 1.49 million barrels in April. Exports mirrored the decline, dropping 4.6 percent over the same period.
Yet, despite these macroeconomic pressures, the naira appreciated by 1.4 percent at the official market, trading at N1,520.74/$ compared to N1,541.36/$ at the start of the year. In the parallel market, it gained an impressive 7 percent, moving from N1,660/$ in January to N1,550/$ as of Wednesday.
Why Is the Naira Gaining?
Analysts attribute the naira’s resilience to several key factors:
1. Reduced Dollar Demand from Travelers
Summer travel, typically a season of high foreign exchange demand, has been notably subdued.
“The cost of international travel has skyrocketed. A typical family vacation now costs up to N20 million—well beyond what most Nigerians can afford,” said Ayokunle Olubunmi, Head of Financial Institutions Ratings at Agusto & Co.
This drop in demand has helped ease pressure on the naira.
2. FX Market Reforms and Exchange Rate Unification
Reforms by the CBN, including unification of the multiple exchange rates, have curbed speculative trading and arbitrage.
“We’re seeing more transparent and genuine FX transactions,” Olubunmi added. “Speculative demand has largely been eliminated.”
3. Cautious Consumer Spending
Rising inflation and stagnant incomes are forcing Nigerians to scale back on luxury expenses like foreign travel and imported goods.
“Even during this year’s Hajj, we noticed fewer campaigns and travel ads,” said Funmi Adebowale, Head of Research at Parthian Partners.
4. Increased FX Liquidity from Portfolio Inflows
Investor confidence in Nigeria’s economy is growing, boosted by market-friendly reforms and FX liberalization. This has led to increased foreign portfolio inflows, further strengthening naira liquidity.
5. Reduced Fuel Importation Pressure
The Dangote Refinery and other domestic refining efforts have slashed the need for forex to import Premium Motor Spirit (PMS), easing pressure on reserves.
6. Import Substitution by Businesses
More Nigerian businesses are shifting to local sourcing due to high import costs. This reduces FX demand and supports the naira’s strength.
“The behavior of both individuals and firms is changing,” Olubunmi noted. “Foreign transactions are now scrutinized, and that’s contributing to FX stability.”
Policy, Cultural and Global Influence
Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), emphasized that even cultural factors are helping the naira.
“Foreign vacations are now limited to the super-rich. We must develop domestic tourism and invest in local hospitality,” he said.
Yusuf also pointed to visa restrictions, such as the recent U.S. policy reducing visa validity from 5 years to 3 months, as a deterrent to outbound travel.
“That’s an embarrassment to our country and a strong disincentive to international travel,” he said.
Naira’s Resilience Not Without Risk
While current trends are encouraging, analysts warn that the naira remains vulnerable to external shocks such as:
- Falling oil prices
- Tightening global financial conditions
- Geopolitical risks
“Autonomous inflows from diaspora remittances and portfolio investors are holding up well, but the FX market remains sensitive,” Yusuf cautioned.
Despite falling reserves, weakening oil prices, and macroeconomic uncertainty, Nigeria’s naira has shown surprising strength in 2025. Credit goes to disciplined FX demand, policy reforms, domestic substitution, and rising investor confidence. However, experts caution that the gains remain fragile and that sustained structural reform is essential to protect the naira’s long-term stability.
Written by Okafor Joseph Afam
Publisher, SpringnewsNG Media Limited
Tel: +234 703 949 0464
Email: springnewsng@gmail.co
