February 5, 2025/CSL Research

The Central Bank of Nigeria (CBN) has extended the temporary approval for Bureau de Change (BDC) operators to purchase foreign exchange from the Nigerian Foreign Exchange Market until 30 May 2025. This extends the initial expiry date of 31 January 2025. The announcement was made in a circular issued by the Trade and Exchange Department of the apex bank. The original directive grants existing BDCs the ability to source foreign exchange from authorized dealers, with a weekly purchase limit of US$25,000. By extending this policy, the CBN aims to maintain a stable and efficient foreign exchange market, improve liquidity, and meet retail demand for eligible invisible transactions.

The announcement comes despite a recent decline in Nigeria’s foreign exchange (FX) reserves. In January 2025, the country’s FX reserves dropped by US$1.11 billion, falling from US$40.88 billion on 02 January to US$39.77 billion by 30 January, according to data from the Central Bank of Nigeria (CBN). This decline is attributed to the bank’s ongoing interventions in the foreign exchange market, external debt servicing, and capital outflows. Despite this drop, we maintain our projections that FX reserves could range between US$41 billion and US$43 billion in 2025, supported by a sustained current account surplus. Additionally, the Nigerian government may
issue more dollar-denominated domestic debt and Eurobonds this year, especially as the easing stance of global central banks could improve access to international financial markets.

Confidence in the Central Bank of Nigeria (CBN) appears at its highest level in the past decade, driven by clearer policies, improved communication, and gradual restoration of policy transmission. As a result, foreign investor interest is expected to strengthen in 2025. To enhance transparency and curb speculation in the Nigerian foreign exchange (FX) market, the CBN has introduced several key policies. On 02 December 2024, it launched the Electronic Foreign Exchange Matching System (EFEMS) to improve governance and ensure a more transparent FX market.

Additionally, from 02 December 2024, all banks operating in the interbank FX market were required to adopt the Bloomberg BMatch system for trading. More recently, the CBN introduced a new Foreign Exchange (FX) Code to enhance liquidity, transparency, and provide clear guidelines for market participants.

These measures underscore the CBN’s commitment to fostering a more transparent, efficient, and stable FX market in Nigeria. Using various currency valuation methods—including Inflation Differential (Purchasing Power Parity), Interest Parity, and Real Effective Exchange Rate (REER)— and taking a weighted average, we expect the Naira to trade around N1,696.62/US$ in 2025. However, significant upside risks remain.