Nigeria’s foreign exchange (FX) market is witnessing a historic turnaround as average daily turnover approaches $500 million, a sign that the authorities’ sweeping reforms are boosting investor confidence.
The nearly five-fold surge in liquidity follows a wave of market-driven reforms by the Central Bank of Nigeria (CBN), including the liberalisation of the exchange rate and the rollout of the Electronic Foreign Exchange Market System (EFEMS) last December.
“This signals more liquidity in the market and means that the CBN may not necessarily need to fall back on the reserves or defend the naira,” said Tobi Ehinmosan, a macroeconomic analyst at Lagos-based consultancy, FBNQuestMerchant.
The improvement, according to the analyst, reflects ‘investors confidence in the FX market,’ a situation he attributed to the change in the exchange rate system.
Ehinmosan noted that the improved supply, which is as a result of market-driven forces, will make it easy to find ‘appropriate pricing’ for the naira. “It means that we’re going to leave price discovery to demand and supply factors.”
Prior to the unification of the exchange rate in June 2023, Nigeria had run a fixed system where the CBN frequently defended the naira by intervening in the market so much that it drained the reserves.
This artificial exchange rate regime grounded FX average turnover which hovered around $100 million and $150 million per day, with the CBN’s intervention contributing over 40 percent to market liquidity.
This unsustainable regime led to the eventual fall of the currency as market forces were not allowed to determine pricing. But the naira is gaining after enduring a steep devaluation that made it shed more than 70 percent of its value.
“The growth in FX market liquidity since EFEMS has been impressive. We are now rapidly approaching $500 million per day turnover — ~5x the Buhari era,” an economist wrote on X.
The Olayemi Cardoso-led central bank has reignited investor confidence, a situation that has led to a sharp rise in market activity, especially from late 2023 onward. The bank’s contribution fell to under 10 percent by early 2024, reflecting reduced direct intervention.
The reintroduction of the open market operation (OMO) auction also spurred market participation with foreign portfolio investors bringing in the much-needed liquidity amid dollar scarcity.
At the April’s auction, the apex bank raised more than N1 trillion, with 102 percent oversubscription. This surge in demand reflects investor expectations that high interest rates will continue, encouraging them to secure attractive yields for longer terms.
Ehinmosan described the country’s ‘high-yield environment’ as one of the impetus “compelling investors to bring in their money,” leading to an increased capital inflow. Foreign investments into the economy jumped to a two-year high of $2.06 billion at the beginning of the year as per CBN data.
The inflows are buoyed by the aggressive monetary tightening stance of the CBN which held rates steady for the second consecutive time in May 2025 after it raised key benchmark interest rates by cumulative 875 basis points to 27.5 percent to anchor inflation.(BusinessDay)
