CBN reforms, rising oil costs elevate FX fortunes

Nigeria’s overseas alternate setting is seeing a notable turnaround as reforms by the Central Bank of Nigeria mix with a recent rally in oil costs to assist the naira, enhance exterior reserves and rebuild confidence in FX markets. SAMI TUNJI examines how stricter FX governance, increased oil earnings and enhancing capital inflows are influencing exchange-rate actions and lowering long-standing market distortions

Nigeria’s overseas alternate outlook has obtained a recent enhance from the current rally in world oil costs, with Brent crude buying and selling comfortably above the Federal Authorities’s 2026 price range benchmark of $64.85 per barrel. At round $69 per barrel, the value stage improves the nation’s near-term income expectations, strengthens greenback inflows and eases strain on exterior buffers at a time when FX market reforms are starting to stabilise pricing dynamics.

Oil costs rose for a 3rd consecutive session final week as markets reacted to escalating geopolitical tensions involving Iran and the broader Center East, a area important to world power provide. Brent crude futures climbed by 94 cents, or 1.4 per cent, to $69.34 per barrel, whereas US West Texas Intermediate rose 1.5 per cent to $64.13. The beneficial properties mirrored heightened issues that doable US army motion in opposition to Iran may disrupt regional output and delivery routes.

Analysts say the rally is pushed largely by a geopolitical danger premium fairly than by underlying supply-and-demand imbalances. The Strait of Hormuz, a slender waterway by which about 20 per cent of world oil flows move, has change into the point of interest of market anxiousness. Any disruption, even short-term, may set off sharp worth spikes. Some analysts have warned {that a} full-scale battle affecting the strait may push Brent costs in the direction of $91 per barrel or increased inside weeks, with extra excessive eventualities projecting ranges as excessive as $150 per barrel.

Past the Center East, unplanned provide disruptions have additionally added to cost pressures. Unscheduled outages in Kazakhstan and weather-related manufacturing disruptions in elements of america have tightened short-term provide circumstances, reinforcing the upward momentum in crude costs. Whereas these elements are thought-about short-term, they’ve amplified the affect of geopolitical fears on market sentiment.

For Nigeria, the implications are important. Oil exports nonetheless account for greater than 80 per cent of overseas alternate earnings and a considerable share of fiscal revenues. Larger costs improve greenback inflows into the economic system, assist authorities funds, and scale back the pressure on the stability of funds. Extra importantly, when mixed with improved FX market governance, increased oil costs might help stabilise alternate charge expectations and restore confidence amongst buyers and market members.

Nevertheless, analysts warning that oil costs alone can’t assure FX stability. Previous cycles present that oil windfalls might be squandered with out sturdy coverage self-discipline. This time, the distinction lies within the Central Bank of Nigeria’s reforms, which have altered how FX is priced, provided and supervised. The oil rally, due to this fact, is greatest seen as a tailwind that reinforces reforms already in movement fairly than a silver bullet.

Naira breaks under N1,400 as sentiment improves

The naira confirmed resilience within the last week of January 2026, gaining important floor in opposition to america greenback within the official Nigerian overseas alternate market.

In keeping with knowledge from the Central Bank of Nigeria, the Nigerian overseas alternate market charge, which is the official charge used for company worldwide funds and eligible transactions resembling medical wants and faculty charges, strengthened from a weekly excessive of N1,422.07/$ on the earlier Friday, 23 January, to shut the month at N1,386.55/$ final Friday, indicating a 2.47 per cent appreciation.

The naira recorded a constant upward development ranging from 26 January, shifting from 1,418.95 per greenback to its strongest level of 1,386.55 per greenback by Friday. Though the market noticed a excessive charge of 1,423.50/$ early within the week, the hole between the best and lowest each day charges narrowed in the direction of the top of the month, indicating a interval of relative stability. The naira’s current motion under the N1,400-to-dollar mark on the official market has been broadly interpreted as a key psychological and market milestone. After spending months buying and selling above that stage, the foreign money’s appreciation displays enhancing liquidity circumstances and better confidence within the restructured FX framework.

Analysts at Cowry Property Administration Restricted, of their weekly report, stated, “The naira is predicted to take care of average beneficial properties, supported by regular oil receipts, stronger non-oil inflows, and a commerce surplus. Oil costs are more likely to stay steady to mildly bullish, reflecting regular world demand and the unchanged rates of interest from america Federal Reserve.”

Additionally, the gradual enchancment, fairly than a sudden soar, has reassured analysts that the strengthening is being pushed by higher worth discovery and FX provide fairly than administrative strain. Market members word that tighter supervision, improved transparency and decreased arbitrage alternatives have helped align charges throughout buying and selling home windows.

The parallel market has mirrored this development. Cowry Asset Administration Restricted stated the naira appreciated 1.06 per cent to N1,454/$1 within the casual market, attributing the transfer to “improved foreign money sentiment throughout each the regulated official phase and the casual overseas alternate market”. Operators say the narrowing hole between official and parallel charges is without doubt one of the clearest indicators that reforms are gaining traction.

In its outlook, specialists at AIICO Capital projected that the naira will “stay risky however broadly steady, with modest appreciation in February. Sturdy exterior reserves and expectations of sustained excessive crude oil costs ought to present assist alongside ongoing financial and financial reforms geared toward boosting overseas inflows. Draw back dangers from exterior shocks are anticipated to stay restricted within the close to time period.”

The president of the Affiliation of Bureaux De Change Operators of Nigeria, Aminu Gwadabe, stated the naira has remained broadly steady throughout markets for a number of months, marking a pointy departure from years of maximum volatility.

On valuation, Managing Director of Monetary Derivatives Firm, Bismarck Rewane, argued that the naira stays undervalued regardless of current beneficial properties. He estimated the foreign money’s truthful worth at about N1,257/$1 and stated it’s undervalued by roughly 11 per cent based mostly on buying energy parity evaluation. Rewane made the submission throughout his keynote deal with on the 2026 Financial Outlook organised by the Affiliation of Company Treasurers of Nigeria, noting that currencies sometimes converge in the direction of their PPP-implied values over a five-year horizon.

Reserves climb previous $46bn as inflows return to official channels

Nigeria’s exterior reserves have emerged as a key barometer of the success of FX reforms and broader macroeconomic changes. The nation’s reserves climbed to about $46.11bn as of 28 January 2026, up roughly $5.8bn from ranges recorded in late 2024. The rise pushed reserves above the $46bn mark for the primary time in about eight years.

Knowledge from the CBN point out that reserves grew by about $510m within the first 22 days of 2026, from $45.50bn on 31 December 2025 to simply over $46bn by 22 January. Analysts say the regular accumulation displays stronger FX inflows and improved market confidence following the liberalisation and restructuring of the FX regime.

CBN Governor, Olayemi Cardoso, has repeatedly burdened that the reserve build-up is natural fairly than debt-driven. “What’s most necessary right here is that our FX reserves are being rebuilt organically, not by borrowing, however by improved market functioning, stronger non-oil exports, and strong capital inflows,” he stated in the course of the Chartered Institute of Bankers of Nigeria’s sixtieth annual bankers’ dinner in Lagos.

He famous that Nigeria’s exterior sector strengthened markedly in 2025, with the present account stability rising by greater than 85 per cent to $5.28bn within the second quarter from $2.85bn within the first quarter. In keeping with him, reserves reached about $46.7bn by mid-November 2025, offering over 10 months of import cowl and considerably enhancing the economic system’s resilience to exterior shocks.

International capital inflows have additionally rebounded strongly. Cardoso disclosed that inflows totalled $20.98bn within the first 10 months of 2025, representing a 70 per cent improve over 2024 and a 428 per cent soar from the $3.9bn recorded in 2023. He stated the naira now trades inside a slender vary, with the hole between official and parallel markets shrinking to underneath two per cent from over 60 per cent.

Diaspora remittances have adopted an analogous trajectory. The CBN governor stated remittance inflows rose by about 12 per cent as confidence returned to official channels following enhancements in transparency, settlement effectivity and reporting. He added that the rollout of the Non-Resident BVN is predicted to additional assist inflows in 2026.

Analysts say the problem now could be sustaining momentum, notably in an election cycle, which traditionally assessments fiscal self-discipline.

Whereas short-term buffers look stronger, they argue that sustaining reserve development will depend upon continued coverage consistency and restraint.

Coverage coordination and home fundamentals underpin stability

Economists say Nigeria’s enhancing FX fortunes are rooted not solely in oil costs and reserves but additionally in deeper structural and coverage shifts. Founder and Chief Advisor of B. Adedipe Associates Restricted, Prof. Abiodun Adedipe, stated current reforms have eliminated long-standing distortions within the economic system. He famous that FX market reforms have eradicated arbitrage and round-tripping alternatives, whereas petrol subsidy removing has ended an estimated annual waste of about $10.7bn and created a extra aggressive downstream market.

Adedipe stated financial institution recapitalisation is strengthening the monetary system’s capability to fund a $1tn economic system, whereas fiscal consolidation is plugging leakages, increasing the usage of know-how and enhancing accountability throughout authorities companies. He described tax reforms because the potential “actual game-changer”, able to igniting regional competitors and driving sustainable development.

The CBN has additionally emphasised the significance of fiscal-monetary coordination. Cardoso stated financial reform can’t reach isolation, including that alignment with fiscal coverage has helped scale back home borrowing prices, enhance liquidity circumstances and improve predictability in fiscal operations. He burdened that the discontinuation of direct deficit financing is irreversible. “There will probably be no return to the apply of financing fiscal deficits by the Central Financial institution,” he stated, pointing to income optimisation frameworks and upgrades to the Treasury Single Account as key supporting reforms.

Nigeria’s home fundamentals additionally present a buffer. The nation’s inhabitants, estimated at over 237m in mid-2025, is without doubt one of the youngest globally, with a median age of about 18 years. Analysts say this demographic profile presents long-term development potential if matched with funding in jobs, abilities and infrastructure.

Within the power sector, Nigerian Nationwide Petroleum Firm Restricted reported income of N5.08tn in October 2025, up from N4.27tn in September, whereas revenue after tax rose to N447bn from N216bn. Fuel manufacturing elevated to six,997mmscf per day, whereas fuel gross sales climbed to 4,713mmscf per day. Though crude oil manufacturing dipped barely to 1.58m barrels per day, NNPC stated it could maintain collaboration and restoration initiatives.

Taken collectively, analysts say Nigeria’s FX outlook is being reshaped by a mixture of firmer oil costs, disciplined financial coverage, enhancing reserves and stronger institutional coordination. The sturdiness of those beneficial properties, nevertheless, will depend upon whether or not reforms are sustained when exterior circumstances inevitably shift.