Naira ends week flat as external reserves hit $52.25bn, highest in 17 years

The naira ended the week relatively stable across foreign exchange market segments as Nigeria's external reserves climbed to a 17-year high of $52.25 billion. That gives the Central Bank of Nigeria (CBN) more room to support the local currency and meet external obligations.

Data from the CBN showed the naira appreciated by N8.08 week-on-week, with the dollar quoted at N1,357.61 at Friday's close, compared with N1,365.69 a week earlier at the Nigerian Foreign Exchange Market (NFEM). Day-on-day, the naira steadied at N1,357.61, a marginal N0.04 gain from N1,357.65 on Thursday. Over the five trading days, it strengthened by N2.53 from N1,360.14 recorded on Monday.

Parallel market and FX turnover

In the parallel market, the naira remained stable at N1,420 per dollar. The gap between official and parallel rates narrowed slightly to 4.64 percent from 4.71 percent previously.

Total turnover in the interbank FX market rose by 9.12 percent week-on-week to $1.00 billion on Friday, from $919 million recorded the previous Friday. The number of deals also increased by 19.09 percent, from 639 on Thursday to 761 on Friday.

Although NFEM figures for Friday's deals and turnover were not available at the time of reporting, activity moderated during the week. Total turnover declined slightly by 2.23 percent week-on-week to $3.95 billion on Thursday, from $4.04 billion a week earlier. The number of deals, however, increased by 3.17 percent from 1,736 to 1,791, indicating sustained activity despite the marginal decline in transaction value.

Reserves and CBN reforms

Nigeria's external reserves rose to $52.25 billion, their highest level in 17 years. That represents a 28.32 percent increase from the $40.72 billion recorded in the corresponding period of 2025.

Within the week, the CBN relaxed restrictions on banks' access to its discount window, lifted the suspension of tenored repo operations, and broadened participation in Open Market Operations (OMO) to include non-bank financial institutions, corporates and retail investors.

According to analysts at Quest Merchant Bank Limited, the reforms should improve market liquidity, strengthen monetary policy transmission and deepen participation in the fixed-income market.

“The reforms are likely to deepen activity across the money market and fixed-income markets while signalling growing confidence in FX market stability, reserve adequacy and overall market conditions,” the analysts said.

What the reforms mean

The reforms could have implications for yields and investment returns. Broader investor participation in OMO securities could accelerate yield compression over time, potentially reducing treasury income opportunities for banks and moderating the carry attractiveness of naira assets.

On Wednesday, the CBN issued a circular to all banks introducing reforms that ease restrictions on Deposit Money Banks' access to the discount window and Standing Lending Facility (SLF), resume tenored repo operations across four to 90 days, and broaden eligible OMO participants. The regulator retained restrictions on banks' participation in OMO auctions on the same day they accessed the discount window.

The most impactful reform, according to Quest Merchant Bank, is the broadening of eligible investors in the OMO market. Individuals, corporates and non-bank financial institutions will now participate in OMO securities through Deposit Money Banks. This expands the investor base, increases demand for short-dated securities and could exert downward pressure on OMO clearing yields over time. However, the CBN retains discretion over volume, tenor and frequency of OMO issuances, meaning it will continue to influence yield outcomes.

The lifting of discount window-related restrictions also reduces funding frictions for banks. Institutions that access the discount window can continue participating in the FX market and government securities auctions, lowering the opportunity cost of CBN liquidity. The reintroduction of tenored repo operations across four to 90-day maturities gives bank treasuries more flexibility in funding beyond the overnight market.

“In our view, the circular forms part of the CBN's broader efforts to deepen domestic financial markets and strengthen the transition towards a more market-based liquidity management framework,” the analysts said.

For the naira, the combination of record reserves and broader market participation suggests continued official capacity to defend the currency. For Nigerian businesses, the reforms could mean more predictable liquidity conditions and a gradual narrowing of the gap between official and parallel market rates.