By Michael Nwadike
The Central Bank of Nigeria (CBN) has activated market-driven pricing for the naira, significantly enhancing transparency and restoring investor confidence. With disciplined reforms and policy clarity, the naira has stabilized at a more sustainable level against the U.S. dollar. The once-wide gap between the official and parallel market rates has all but disappeared, a first in Nigeria’s recent history, and speculative arbitrage has all but vanished.
The battle to close the gap between the official market rates and parallel market rates has been raging for decades, with little results to show for it. That was until the Central Bank of Nigeria (CBN) -led forex reforms kicked in, and close the huge gaps between both markets.
For instance, while the naira exchanges at N1,599/$1 at the official window, the local currency exchanges at N1,600/$1, representing a meagre N1 gap between both rates.
Speaking on the development, CBN Governor, Olayemi Cardoso, said the renewed stability in the exchange rate has restored confidence in the market and spurred autonomous forex flows to the economy through formal channels.
According to him, the forex inflows are diversifying Nigeria’s forex sources beyond oil, with large funds coming from Diaspora remittances and export proceeds.
The stability in exchange rate has been applauded by market watchers, including the now popular Fitch Ratings, which upgraded Nigeria’s ratings, citing the exchange rate unification to reduce arbitrage in the markets, introduction of electronic FX matching platform and a new FX code to enhance transparency and efficiency in the market as well as deployment of monetary policy tightening to keep inflation on check.
Cardoso said: “The numbers speak for themselves. The difficult reforms that were undertaken have begun to bear fruits. The orthodox monetary policy is a route we can’t compromise on. For adopting orthodox monetary policy, we have been able to stabilise the macroeconomic credentials of the economy.”
Cardoso said that the apex bank has strengthened its monetary buffers and positioned Nigeria to better withstand external shocks.
“Indeed, the macroeconomic stability we are beginning to see today would not have been possible without these decisive actions. Nigeria’s external buffers have also strengthened considerably. Our foreign reserves now exceed $38 billion, providing nearly ten months of import cover. This robust buffer enables us to better withstand external shocks – whether from declining oil prices or global financial turbulence – thereby safeguarding our economy,” he said.
Speaking further, Cardoso said that in 2024, Nigeria recorded a balance of payments surplus of $6.83 billion, the strongest in many years, driven by rising exports and renewed capital inflows.
He spoke further: “At the same time, we are enhancing the strength of our financial sector. The banking sector recapitalisation is well underway, with strong momentum and stakeholder alignment, and will ensure that Nigerian banks are fully equipped to support the real economy with greater scale, stability, and capacity.
“At these Spring Meetings, our development partners expressed their confidence in Nigeria’s trajectory. Feedback from global investors and the Nigerian diaspora has likewise been overwhelmingly positive, reflecting growing alignment with our economic direction.
“Nigeria is increasingly recognised as a rising economic force, admired for the resolve shown in implementing difficult but necessary reforms. These achievements, while encouraging, only strengthen our resolve to press forward. We will not be complacent. Instead, we will redouble our efforts to ensure these positive trends are sustained.
“To all Nigerians: these reforms are not easy, but they are delivering results. We have moved from a position of vulnerability toward one of growing strength, and our economic trajectory is beginning to turn positive. We return home mindful of global challenges yet filled with renewed commitment to stay the course and build on our gains in stability and resilience.”
Wooing global investors for growth
Speaking during the just concluded Spring Meetings of the IMF/World Bank Group in Washington DC, at the Nigeria Investor Forum organised by JP Morgan in Washington DC, Cardoso said the adoption of orthodox monetary policy will be sustained, because it has helped the economy to navigate difficult path to a point of stability.
He said the foreign investors have seen these developments, and raised their investments and commitments in the domestic economy.
He spoke about removing bottlenecks to investment flows, and closed the gaps in exchange rate. He said the apex bank reached out to the Diaspora communities, who are showing more commitments to investing in the economy. Cardoso explained that this is a period of heightened uncertainty, but noted that the apex bank had in the last 18 months been in a period of crisis. We have been able to build a stronger economy, through difficult things we have done.
He said that Nigeria has a competitive naira, which is the game changer that should attract investors to the economy. He said that with a competitive naira, FDIs inflow prospects to the economy have risen.He said the ease of doing business is being worked on, which will further support investment inflows.
JP Morgan also disclosed that it has applied to the CBN for a merchant banking licence. In a report explaining its African expansion, the American Bank disclosed plans to transform its representative office in Lagos into a fully-fledged business branch, marking a further step in its CEO’s strategy to strengthen its presence on the African continent.
Present in Lagos since the 1980s, US bank JP Morgan says it plans to transform its Nigeria representative office into a fully-fledged branch.
“The New York based financial institution, managed in Nigeria by Dapo Olagunju will apply to the Central Bank of Nigeria, CBN, for a merchant banking licence in the coming months,” the report said.
If successful, this new US-Nigeria entity will be able to offer dollar loans to large companies in addition to its advisory and asset management activities.
This is part of JP Morgan’s and its CEO, Jamie Dimon’s strategy to increase its presence on the African continent. In mid-October, Dimon visited Nigeria, where he met the CBN Governor Olayemi Cardoso. He also visited South Africa, where JP Morgan has a subsidiary, and Kenya. Before the trip, Dimon stressed that he wanted to strengthen the bank’s presence in Africa, by adding a country or two every couple of years or so. JP Morgan has since opened offices in Abidjan, Cote d’Voire and Nairobi, Kenya to deepen its presence in Africa. The strategy for JP Morgan in Africa is to accompany countries in issuing Eurobonds. The bank participated in Nigeria’s 2024 fundraising on the international market.
Nigeria ready for JP Morgan Index return
The Director-General of the Debt Management Office (DMO) said Nigeria is in advanced discussions with JP Morgan to re-enter the Government Bond Index (GBI) and renew investors’ confidence. The DMO boss explained that Nigeria has enjoyed favourable credit assessment among rating agencies in recent times on the back of the sweeping reforms initiated by the CBN.
Fitch Ratings had also upgraded the Long-Term Issuer Default Ratings (IDRs) of seven Nigerian banks and two bank holding companies to ‘B’ from ‘B-‘, noting that the outlooks are stable. The upgrades of the Long-Term IDRs of the banks followed the recent sovereign upgrade and reflect Fitch’s view that Nigeria’s sovereign credit profile has become less of a constraint on the issuers’ standalone creditworthiness, the rating agency said.
Fitch also upgraded Nigeria’s Long-Term IDRs to ‘B’ from ‘B-‘ on 11 April, a decision that reflected increased confidence in the government’s broad commitment to policy reforms implemented since its move to orthodox economic policies in June 2023, including exchange rate liberalisation, monetary policy tightening and steps to end deficit monetisation and remove fuel subsidies.
“These have improved policy coherence and credibility and reduced economic distortions and near-term risks to macroeconomic stability, enhancing resilience in the context of persistent domestic challenges and heightened external risks,” Fitch said.
Nigeria was removed from the JP Morgan index in 2015 ostensibly due to its deviation from orthodox monetary policies and influence of capital control in its management of foreign exchange.
Principally due to reduction in oil revenues at the time, Nigeria introduced currency restrictions to defend the naira after it failed to halt a dangerous slide with burning of dollar reserves. The bank had earlier warned Nigeria to restore liquidity to its currency market in a way that allowed foreign investors tracking the index to conduct transactions with minimal hurdles.
“Foreign investors who track the GBI-EM series continue to face challenges and uncertainty while transacting in the naira due to the lack of a fully functional two-way FX market and limited transparency,” the bank said in a 2015 note.
Economic prospects remain positive
The Nigeria’s economy and businesses will have so many things to cheer in 2025 and the impact of the economic reforms in FX market, exchange and huge budget outlays begin to pay off for them.
Nigeria’s economy is already exiting the most painful phase of the reform adjustment process in 2025, Non-Executive Director of Parthian Partners, Bismarck Rewane has predicted. Rewane projected that the economy would begin to recover from the toughest phase of its reform adjustments by 2025, emphasizing the importance of strategic policy implementation and institutional reforms. He underlined the critical role of investment in driving economic growth. “Revenue alone is not enough,” Rewane stated. “Investment is key, but it will be influenced by confidence, transparency, and the right policies.”
He also called attention to persistent challenges such as power supply inefficiencies and the lack of transparency in the oil and gas sector, which require immediate attention through structural reforms. Rewane said that 2025 is going to be less hard, less painful, less difficult than last year. He said the fact that things were so difficult in 2024 does not in any way indicate that the difficulties will persist this year.
CEO of NGX Regulation Limited, Olufemi Shobanjo, harped the role of liquidity in capital markets, emphasising initiatives that enhance investor confidence and ensure market stability.
Macroeconomic indicators positive
Besides, the CBN has also taken strategic steps to tackle inflation. The apex bank recently hosted the Monetary Policy Forum 2025, featuring fiscal authorities, legislative, private sector, development partners, subject-matter experts, and scholars with the theme: “Managing the Disinflation Process”.
Cardoso explained that the apex bank’s focus is to sustain price stability, the planned transition to an inflation-targeting framework, and strategies to restore purchasing power and ease economic hardship.
The CBN is continuing its disciplined approach to monetary policy, aimed at curbing inflation and stabilizing the economy.
“These actions have yielded measurable progress: relative stability in the FX market, narrowing exchange rate disparities, and a rise in external reserves to over $40 billion as of December 2024. The CBN also focused on strengthening the banking sector, introducing new minimum capital requirements for banks (effective March 2026) to ensure resilience and position Nigeria’s banking industry for a $1 trillion economy,” he said.
To further enhance the functionality of the foreign exchange market, the apex bank introduced an Electronic Foreign Exchange Matching System which has proven effective in other markets. The programme was meant to check forex market distortions, eliminate speculative activities and instil transparency. The EFEMS, which is commonplace in developed and developing markets, offers real-time information on currency rates, trading volumes, and market activity. For many stakeholders, these measures under Cardoso have not only lifted the forex market and entrenched long-lasting stability, but has laid solid foundation for economy and businesses to thrive.