A recent report by Bayo Adedipe and Associates suggests the Naira will settle at N1,574/$1 in 2025. For context, the exchange rate closed in 2024 at N1,553/$1, marking only a slight shift.
Nairalytics, the research arm of Nairametrics, projects the exchange rate will hover between +5% (appreciation) and -10% (depreciation), a range that qualifies as relatively stable, especially when compared to the 40% nosedive recorded in 2024.
Most other projections echo this optimism, predicting a stable exchange rate in 2025. But what underpins this newfound confidence in the Naira? Let’s unpack the reasons.
Firstly, some of the storm clouds that darkened 2024’s forex market appear to have cleared. One major shift is the Central Bank of Nigeria’s (CBN) introduction of a new forex platform.
This system has injected much-needed transparency into currency transactions, calming market jitters. With clearer rules of engagement, speculative activities have waned, and the market is gradually aligning with fundamentals.
Adding to the optimism is the anticipated reduction in Nigeria’s reliance on imported petroleum products. Over the last three years (2022-2024), petroleum products accounted for 39% of total imports—a staggering 40% as of Q3 2024 alone. The gradual ramp-up of domestic refinery operations is set to slash this figure in 2025, reducing forex demand significantly. For a nation that has battled crippling import bills, this is akin to a breath of fresh air.
Nigeria’s forex reserves are also in a much better place. Starting 2024 at $32.89 billion, reserves have climbed closer to $41 billion, thanks to a mix of foreign debt inflows and higher crude oil prices. While oil prices may face downward pressure in 2025, they are unlikely to dip low enough to harm Nigeria’s reserve position.
In fact, crude output is expected to rise this year, further bolstering reserves. Additionally, the government is eyeing the foreign debt market once more, a move that could inject even more dollars into the system.
Foreign direct investments (FDIs) are another bright spot. With multiple bilateral agreements signed and the government actively courting foreign investors, there’s a growing pipeline of capital waiting to enter Nigeria.
CBN data shows forex remittances had already risen to $600 million monthly by June 2024, and policies like the non-resident BVN initiative are expected to drive this number even higher. According to Nairalytics, Nigeria needs between $80 billion and $100 billion annually to maintain a stable exchange rate—an ambitious target, but one that seems more achievable with these inflows.
The balance of payments, too, has shown improvement rising to over $6 billion as of Q3 2024. As of H1 2024, Nigeria’s external accounts were looking healthier, according to CBN data. Meanwhile, the expected cuts in global interest rates this year could work in Nigeria’s favor, making its high yields even more attractive to foreign portfolio investors.
While a recent U.S. job report has slightly dented these rate-cut projections, the broader consensus remains optimistic, especially with the transition to a new government in the U.S. One of the more subtle, yet impactful, developments has been the taming of speculative activities fueled by crypto transactions.
In the first half of 2024, crypto-driven dollar demand contributed to forex volatility. However, a clampdown on these transactions stabilized the exchange rate in the second half of the year. With the CBN keeping a closer eye on such activities, this stability could persist in 2025.
By all accounts, 2025 is poised to be a much calmer year for the Naira. While challenges remain—because, let’s face it, they always do—the pieces for stability are falling into place.
Improved reserves, reduced import dependency, rising inflows from remittances and FDIs, and enhanced market transparency all point to a currency that can hold its own this year. For once, the Naira might just enjoy a little less drama. Fingers crossed.
Read: Why the Naira could depreciate in 2025 – Nairametrics for a more Pessimistic View.
