Exchange rate gap narrows on rising FX inflows, CBN policies

Rising FX inflows occasioned by the policies of the Central Bank of Nigeria (CBN) have supported exchange rate stability and narrowed the gap between official and parallel market rates.

The gap between official and parallel market rates narrowed to N34/$ as average monthly FX inflows hit $5.95 billion. The development is fueled by key policies being implemented by the CBN to support more foreign capital flows to the economy and support the domestic economy.

Price and exchange rate stability are key responsibilities the CBN continues to entrench in the Nigeria macroeconomic environment. Sustaining these roles takes a lot of policy implementation ensuring that domestic and foreign investors’ interest in the economy continues to soar.

Read also: CBN’s policies trigger inflation rate dip as growth prospects rise

In recent months, analysis of FX inflows in the last few months showed that Nigeria attracted nearly $6 billion monthly inflows from May 2025 till date.

Industry report showed that Nigeria’s foreign exchange market witnessed a significant boost in May, with total inflows rising by 62.0 per cent month-on-month (M-o-M) to $5.96 billion, driven largely by increased participation from domestic and foreign investors.

This marked one of the highest inflow levels in recent months and signals improving market sentiment amid macroeconomic reforms and a relatively stable naira.

The naira closed the week at N1,570/$ at the parallel market, and N1,536/$ at the official market, creating a rate gap of N34/$.

In an emailed note to investors, analysts at Financial Derivatives Company Limited attributed rising FX inflows to surge in oil prices and multiple inflow channels created by the Central Bank of Nigeria.

The CBN has in recent months, activated multiple FX sources to increase dollar inflows, boost dollar access to manufacturers and retail end users and support naira recovery across markets.

From moves to improve diaspora remittances through new product development, the granting licenses to new International Money Transfer Operators (IMTOs), implementing a willing buyer-willing seller FX model, and enabling timely access to naira liquidity for IMTOs, the apex bank has simplified dollar-inflow channels for authorised dealers and other players in the value chain.

Given that FX inflows to the economy are strategic in achieving monetary and fiscal policy stability, the CBN under Olayemi Cardoso, its governor, puts in a lot of effort in attracting more inflows into the economy.

Diaspora remittances to Nigeria, estimated at $23 billion annually remain a reliable source of forex to the domestic economy. There are also other sources and policies that are being explored by the apex bank to keep dollar inflows coming.

The CBN’s initiatives have supported continued growth in these inflows, aligning with the institution’s objective of doubling formal remittance receipts within a year.

The remittances in the economy is expected to increase based on the CBN’s ongoing efforts to bolster public confidence in the foreign exchange market, strengthen a robust and inclusive banking system, and promote price stability, which is essential for sustained economic growth.

Read also: Inflation seen easing as FX inflows rise, money supply falls

Charlie Bird, director of trading at Verto, said dollar liquidity dynamic is now more balanced, with foreign investors and airlines able to repatriate funds.

Speaking during Cordros Asset Management seminar titled: “The Naira Playbook”, he said Nigeria is now darling of foreign investors because of improved dollar liquidity in the economy due to positive CBN’s reforms.

For instance, the CBN under Cardoso, recently announced the introduction of two new financial products designed to serve Nigerians living abroad and attract more diaspora remittances.

The CBN recently released the reviewed guidelines of International Money Transfer Services in Nigeria. These Guidelines mark a significant shift in how IMTOS conduct their operations, reflecting the CBN’s ongoing efforts to enhance transparency and efficiency in foreign exchange transactions and to bolster diaspora remittances into Nigeria.

Further circular titled “New Measures to Enhance Local Currency Liquidity for Settlement of Diaspora Remittances” highlighted the apex bank’s commitment to improving the Nigerian foreign exchange market infrastructure by increasing the flow of remittances through formal channels.

It introduces measures aimed at providing licensed IMTOs with access to Naira liquidity from the CBN, facilitating the disbursement of remittances to beneficiaries.

Net FX reserves position rises

Olayemi Cardoso-led CBN recently announced a quantum leap in the net FX reserve position at $23.11 billion at the end of last year.

Cardoso had upon assuming office in October 2023, prioritised reforms to rebuild Nigeria’s economic buffers and strengthen resilience.

In the foreign exchange market, the apex bank faced a backlog of over $7 billion in unfulfilled commitments and a fragmented FX regime characterised by multiple forex rates, which had encouraged arbitrage opportunities.

Read also: Naira ends week with gains despite slowing FX reserves

This regime stifled much needed foreign investment, and led to the depletion of external reserves which fell to $33.22 billion in December 2023.

“Over the past year, we have undertaken critical reforms to unify Nigeria’s exchange rate, eliminating distortions and restoring transparency. This unification has enabled us to clear the outstanding foreign exchange obligations, giving businesses, ranging from manufacturers to airlines, the confidence to plan and invest in the future. To further enhance the functionality of the foreign exchange market, we are introducing an electronic FX matching system, which has proven effective in other markets,” Cardoso said.

According to the apex bank data, NFER stood at $23.11 billion, the highest level in over three years, a marked increase from $3.99 billion at year-end 2023, $8.19 billion in 2022, and $14.59 billion in 2021.

The NFER, which adjusts gross reserves to account for near-term liabilities such as FX swaps and forward contracts, is widely regarded as a more accurate indicator of the foreign exchange buffers available to meet immediate external obligations.

Gross external reserves also increased to $40.19 billion, compared to $33.22 billion at the close of 2023. The increase in reserves reflects a combination of strategic measures undertaken by the CBN, including a deliberate and substantial reduction in short-term foreign exchange liabilities, notably swaps and forward obligations.

The strengthening was also spurred by policy actions to rebuild confidence in the FX market and increase reserve buffers, along with recent improved foreign exchange inflows, particularly from non-oil sources.

The result is a stronger and more transparent reserves position that better equips Nigeria to withstand external shocks. The expansion occurred even as the CBN continued to reduce short-term liabilities, thereby improving the overall quality of the reserve position.

“This improvement in our net reserves is not accidental; it is the outcome of deliberate policy choices aimed at rebuilding confidence, reducing vulnerabilities, and laying the foundation for long-term stability,” Cardoso, commented.

“We remain focused on sustaining this progress through transparency, discipline, and market-driven reforms.”

Reserves have continued to strengthen in 2025. While the first quarter figures reflected some seasonal and transitional adjustments, including significant interest payments on foreign-denominated debt, underlying fundamentals remain intact, and reserves are expected to continue to improve over the second quarter of this year.

Going forward, the CBN anticipates a steady uptick in reserves, underpinned by improved oil production levels, and a more supporting export growth environment expected to boost non-oil FX earnings and diversify external inflows, analysts said.

The CBN remains committed to prudent reserve management, transparent reporting, and macroeconomic policies that support a stable exchange rate, attract investment, and build long-term resilience.

Read also: CBN’s assets jump 740% in a decade on FX devaluation

More FX sources bolster inflows

Foreign capital inflows to the domestic economy remain crucial elements in the drive to achieve monetary and fiscal policy stability.

The apex bank is cultivating more sources of FX to increase dollar inflows, boost access to manufacturers and retail end users.

From moves to boost diaspora remittances through new product development, the granting licenses to new IMTOs, implementing a willing buyer-willing seller FX model, and enabling timely access to naira liquidity for IMTOs, the CBN has simplified dollar-inflow channels for FX dealers to boost business and economic growth.

President, Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, said the policy shifts showed the level of creativity, policy and hard work that Cardoso puts in ensuring that more forex flows into the economy and remain accessible to businesses.

He said diaspora remittances to Nigeria, estimated at $23 billion annually remain a reliable source of forex to the domestic economy. There are also other sources and policies that are being explored by the apex bank to keep dollar inflows coming.

According to him, the CBN’s initiatives have supported continued growth in these inflows, aligning with the institution’s objective of doubling formal remittance receipts within a year.

The remittances in the economy is expected to increase based on CBN’s ongoing efforts to bolster public confidence in the foreign exchange market, strengthen a robust and inclusive banking system, and promote price stability, which is essential for sustained economic growth.

X-raying revised IMTO guidelines

In a report analysing the circular, analysts at Duale, Ovia & Alex-Adedipe, a specialised law firm with leading experts in its core areas of practice, explained that the guidelines permit IMTOs to conduct payout foreign remittances through agents, who are designated as Authorised Dealer Banks (ADBs).

They require IMTOs to enter into formal contracts with ADBs outlining the terms and conditions of their engagement. Additionally, IMTOs are required to notify the CBN of the appointment of each ADB.

Read also: FX reforms drive Nigerian banks’ net foreign assets to 10-yr high

Furthermore, IMTOs are to receive foreign remittances in a designated account maintained with ADBs. They explained that the account must be separate from other accounts held by the IMTO. The guideline mandates ADBs and IMTOs to disburse proceeds of foreign remittances to beneficiaries in Naira.

According to them, payments can be made either through a bank account with the ADB or in cash, provided the cash withdrawal does not exceed $200. If a beneficiary does not have an account with the IMTO’s ADB, the ADB will credit the beneficiary’s account with another bank.