The Nigerian naira could face further depreciation, potentially hitting N1,804.45 per dollar in 2025, according to a recent report by Afrinvest, a Lagos-based investment and research firm. The report, titled Beyond the Rhetorics: Transforming Reforms to Tangibles, sheds light on the nation’s foreign exchange challenges and the persistent volatility in the currency market.
Contents
Naira’s Tumultuous Journey in 2024
The naira has faced significant challenges throughout 2024, reaching a record low of nearly N2,000/$ on the parallel market earlier in the year. Official exchange rates also reflected pressure, trading around N1,700/$ at their worst. This depreciation stemmed from sweeping policy reforms, including the federal government’s decision to float the currency and implement two rounds of devaluation. These measures resulted in the naira losing over 40% of its value year-to-date.
Despite the turbulence, there was a glimmer of hope toward the end of 2024. The currency rebounded to N1,534/$ on December 27, strengthening from N1,548.40/$ recorded just before Christmas, according to data from FMDQ Securities. Analysts attributed this improvement to the introduction of the FX BMatch platform in October, which enhanced transparency and stability in the foreign exchange market.
Projections for 2025: A Delicate Balance
Afrinvest’s report forecasts continued exchange rate volatility in 2025 but at a relatively subdued pace. This cautious outlook is tied to concerns about Nigeria’s ability to sustain foreign exchange demand. While the country’s gross foreign reserves have surpassed $40 billion, much of this increase comes from “inorganic sources” with stringent usage conditions.
“The Central Bank of Nigeria (CBN) might struggle to meet market demand consistently, given the nature of recent FX inflows,” the report stated. As a result, the naira could depreciate to a weighted fair value of N1,804.45 per dollar in the coming year.
READ ALSO: Dollar to Naira Black Market Rates for 3rd January 2025
The 2025 national budget, which assumes an exchange rate of N1,400/$, underscores the complexity of managing Nigeria’s currency amid fluctuating economic variables. Achieving this target will depend on a combination of increased inflows and effective monetary policy.
Potential Catalysts for Stability
Economists believe the naira’s trajectory in 2025 could be influenced by several factors:
- Crude Oil Exports: Higher crude oil prices and increased production could boost Nigeria’s foreign exchange earnings, providing much-needed liquidity.
- Diaspora Remittances: A significant uptick in remittances could alleviate pressure on the naira by increasing dollar supply in the market.
- Policy Measures: The sustenance of initiatives like the Enhanced Foreign Exchange Market System (EFEMS) could foster greater market stability and transparency.
Afrinvest’s report remains cautiously optimistic about the possibility of a naira rebound, contingent on organic inflows from crude and non-crude exports, foreign investments, and remittances.
While the projections for 2025 paint a challenging picture, they also highlight opportunities for growth and resilience. The report’s insights emphasize the need for strategic policy reforms and increased diversification of the economy to reduce reliance on oil revenues.
As Nigeria braces for another year of economic adjustments, the naira’s performance will be closely watched by market participants and policymakers alike. Will the currency find stability amid volatility, or will external pressures push it further into uncharted territory?
For more information, visit the full report on Afrinvest: Naira seen hitting N1,804/$ on 2025 volatility projections.
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