The naira has strengthened sharply in recent weeks, reaching one of its strongest levels in nearly two years, even as rising foreign portfolio inflows increase the risk of investor profit-taking later in the year, according to a macro update by CardinalStone.

According to the report, the naira has witnessed a steep appreciation in the official market (+6.9 per cent year to date), reaching one of the strongest levels of the past two years (1,347.78/$ on Monday), which indicates improved liquidity conditions in the official foreign-exchange window.

However, the spread between the official and parallel markets persisted, with the parallel market initially trading at about a 5.7 per cent premium before narrowing to roughly 3.2 per cent following renewed FX interventions by the Central Bank of Nigeria.

CardinalStone said the narrowing spread suggests “there was more liquidity in the official window than in the parallel market.”


Last week, the apex bank permitted licensed Bureau de Change operators to access FX through authorised dealers at prevailing market rates, with a weekly purchase limit of $150,000 per BDC subject to KYC requirements. BDCs must also sell unused balances within 24 hours to prevent hoarding, while cash transactions are capped at 25 per cent of total FX trades, with settlement required through licensed financial institutions.

CardinalStone noted that with 82 licensed BDCs, potential supply to the segment could reach about $50m monthly, which is below the more than $1bn supplied monthly before COVID-19.

The disparity, the report said, reflects “material improvements in the FX market that reduced speculative demand and routed most corporate FX requirements to the official window”.

Still, the renewed supply has eased retail FX pressures, helping compress the parallel market premium.

On the foreign portfolio investment side, the analysts warned that continued currency gains could trigger portfolio rebalancing by foreign investors.

“Nigeria’s carry trade remains one of the most compelling across EM and frontier markets, continuing to attract sizable foreign portfolio inflows. We estimate outstanding FPI positioning at roughly $12.0–$14.0bn.

“Working with the assumption that a significant proportion of the 2025 inflows entered the Nigerian market at a rate of N1,500.00/$, we estimate FX gains of 22.4 per cent on currency alone if the naira strengthens to the midpoint of N1,200.00/$ to N1,250.00/$. Such a gain could potentially increase the risk of foreign portfolio exits, especially considering a likely build-up in uncertainties ahead of the general elections,” said the experts.

Ahead of Monday’s Monetary Policy Committee meeting of the CBN, the analysts noted that the indicators likely to shape the committee’s decision were sending mixed signals.

“On one side, inflation is moderating and short-term rates are converging around 22.0 per cent, which is about 500 bps lower than the MPR of 27.0 per cent. On the flipside, the recent body language of the CBN shows low tolerance for liquidity after the governor stated at the National Economic Conference that the liquidity overhang is a major risk to the stability achieved through recent policy reforms.

“So far this year, the CBN has net-issued N10.9 tn through OMO and has left the SDF rate attractive for banks to deposit with the CBN in a bid to avoid liquidity stoking renewed inflationary pressure. The CBN is also concerned about election-related liquidity, which is expected to become more pronounced in the second half of the year. Furthermore, of the total expected liquidity of N44.2 tn in 2026, over 75.0 per cent is expected in the first half of 2026.

It stated, “As such, we perceive that the CBN may be inclined towards holding the policy rate constant to signal its concern about liquidity risk while making an adjustment to the asymmetric corridor to align the SDF rate to OMO yields with a view to guarding the attractiveness of OMO and securing banks’ presence as key counterparties to investing FPIs. We see a 60.0 per cent probability of this view panning out and a 40.0 per cent probability of an indicative 50-100 bps rate cut.”

Looking ahead, CardinalStone said the forward-market pricing suggests a weaker currency trajectory later in the year. Six-month non-deliverable forwards indicate a rate near N1,449.96/$ in the early second half, with CardinalStone’s base-case range set at N1,350–1,450/$ for 2026.