Naira Hits Three-Year High as Dollar Hoarders Sell Off, Nigeria’s Reserves Climb to $48.5bn
- The naira's rise prompts corporations to rethink dollar stockpiling as holding foreign currency loses appeal
- Central Bank reforms and strong fundamentals boost naira's value, narrowing the gap between official and parallel markets
- Companies re-evaluating dollar holdings focus on asset-liability matching amid uncertain economic landscape
Pascal Oparada is a journalist with Legit.ng, covering technology, energy, stocks, investment, and the economy for over a decade.
The naira’s steady rally is forcing investors and corporates who stockpiled dollars as a hedge against devaluation to rethink their strategy.
Rising yields, tighter liquidity controls and improved foreign exchange transparency have reduced the appeal of holding the greenback, prompting many to sell at lower rates to avoid potential losses.
Source: Getty Images
A senior treasury manager at a Lagos-based multinational said companies with large dollar savings are beginning to offload their positions as the local currency gains momentum.
For years, holding foreign currency served as protection against volatility.
According to a BusinessDay report, that strategy paid off handsomely in 2023 and 2024 when the naira suffered sharp declines, delivering significant revaluation gains to firms with net dollar assets.
Banks were among the biggest beneficiaries. Eight leading lenders recorded N754.8 billion in foreign exchange revaluation gains in 2023, a 472 per cent surge from the previous year. But the tide has shifted.
Policy reforms narrow market gaps
Last year, the naira recorded its first annual gain in over a decade, closing up 7.5 per cent. Reforms introduced by the Central Bank of Nigeria, including the Electronic Foreign Exchange Matching System, improved transparency and curbed speculative trading.
So far this year, the naira has strengthened by about 7 per cent, with the gap between the official and parallel markets narrowing sharply.
The spread has compressed to less than one per cent, compared to a wide N92 difference just weeks ago.
The currency recently traded around N1,345 per dollar in the parallel market, its strongest convergence level in two years, and closed near N1,340 compared to N1,346.32 at the official window.
Johnson Chukwu, chief executive of Cowry Asset Management, said the parallel market’s appreciation signals that dollar holders are selling to avoid exchange losses.
As confidence in the naira improves, speculative demand for dollars appears to be fading.
Stronger fundamentals support the rally
Analysts say the currency’s rebound is backed by improving fundamentals. Nigeria’s external reserves climbed to $48.5 billion as of mid-February, the highest level in 13 years, giving the central bank ample buffer to intervene when necessary.
Another structural boost comes from the $20 billion Dangote Refinery.
The 650,000 barrels-per-day facility is expected to generate over $10 billion in refined product exports this year, adding fresh dollar inflows into the economy and easing pressure on foreign exchange demand.
High domestic interest rates, currently around 27 per cent, have also attracted foreign portfolio investors.
In the first nine months of 2025, portfolio inflows jumped 225 per cent year-on-year to $14.3 billion, accounting for the bulk of capital importation. With global yields declining, Nigeria’s returns remain attractive.
Still, Chukwu cautioned that these investors may exit if they perceive election risks or believe the naira has reached its fair value. A sharp withdrawal could quickly reverse current gains.
Corporations take a measured approach
Not all companies are rushing to unwind their dollar holdings. Some finance executives insist their strategies are rooted in asset-liability matching rather than currency speculation.
Efosa Ajayi, finance lead at Shara, said about 10 per cent of the firm’s balance sheet is held in dollars strictly to meet foreign obligations.
The company also builds a 20 per cent sensitivity buffer into its annual planning to absorb exchange-rate swings.
At cross-border technology firm Tyrus Technologies, treasury decisions are guided by internal volatility bands.
Finance lead Gift Emihia noted that while the recent appreciation is encouraging, sustained liquidity and consistent policy direction are needed before declaring a lasting structural shift.
Source: Getty Images
For now, the naira’s rally is reshaping behaviour across Nigeria’s financial landscape.
Dollar hoarders are adjusting, policymakers are leaning on stronger buffers, and investors are watching closely to see whether the currency’s resurgence can endure.
CBN dollar sales to BDCs shrink naira gap
Legit.ng earlier reported that the gap between Nigeria’s official and parallel foreign exchange markets narrowed further on Friday, February 13, 2025, signalling renewed convergence in the currency market after the Central Bank of Nigeria reopened dollar sales to Bureau De Change operators.
The spread between both segments tightened to N65, down from N92 on Wednesday, a 4.6 per cent contraction within two trading sessions.
The move comes as BDC operators prepare to access fresh dollar supply from banks under the apex bank’s revised retail FX framework.
Source: Legit.ng
