The Nigerian naira is projected to depreciate to a weighted fair value of N1,804.45 to the US dollar in 2025, amidst ongoing volatility in the foreign exchange market, according to a report from Lagos-based investment and research firm, Afrinvest. The report, called “Beyond The Rhetorics: Turning Reforms into Results,” points out that even though Nigeria’s foreign reserves have increased to over $40 billion, the exchange rate is likely to remain unstable in the next year, though at a slower rate.
Afrinvest’s prediction is based on the assumption that the Central Bank of Nigeria (CBN) will struggle to keep up with the ongoing demand for foreign currency in the market. The report also notes that recent increases in foreign reserves have mostly come from sources that are not sustainable, and some of these funds have strict rules on how they can be used. This limits the CBN’s ability to manage the demand for foreign currency, which adds to the current instability.
This outlook differs from Nigeria’s 2025 budget, which expects the exchange rate to settle at N1,400 per dollar. However, the naira has seen some recovery in recent weeks, improving from N1,548.40/$1 just before Christmas to N1,534/$1 by December 27, 2024, based on data from FMDQ Securities.
The naira has faced significant depreciation throughout 2024, with its worst decline happening in February when it nearly reached N2,000 per dollar in the unofficial market, while the official rate stayed around N1,700. This drop followed the radical reforms implemented by the federal government, including the floating of the currency and two rounds of devaluation, which caused the naira to lose over 40% of its value year to date.
In recent times, however, the market has seen relative stability, and transparency has improved with the introduction of the FX BMatch system in October. Experts believe that keeping the EFEMS going and increasing reserves might help reduce the strain on the naira.
