CBN plans to strengthen financial market reform progress

Last week’s events, including the Monetary Policy Committee (MPC) meeting and Bankers’ Night, were crucial for the Central Bank of Nigeria (CBN) to update Nigerians on the progress made in enhancing the financial market’s resilience. While the naira has stabilized around the N1,440/$ range, indicating a degree of calm after past instability, this newfound stability is a result of a more balanced supply and demand dynamic in the foreign exchange (FX) market.

Unlike previous fluctuations driven by sudden inflows or policy changes, the current stability is based on healthier bid-offer spreads, which have brought back a sense of order missing in the FX market for some time. Additionally, recent improvements in liquidity and growing confidence have been supported by an increase in external reserves, now standing at N44.56 billion, a 0.68% weekly increase.

Governor Yemi Cardoso’s commitment to continuing FX and financial system reforms was highlighted, indicating the CBN’s dedication to sustaining market stability initiated over a year ago. The market’s improved liquidity is linked to the CBN’s focus on the willing-buyer, willing-seller framework, promoting market-driven price discovery and minimizing direct intervention, as endorsed by the MPC.

The positive market signals observed in recent weeks align with broader economic recovery, with inflation dropping consistently over seven months. Reserves have significantly grown to $46.7 billion, providing over ten months of import cover. Cardoso emphasized that this reserve build-up is organic, bolstered by market inflows rather than external borrowing.

The marked rise in foreign capital inflows, reaching $20.98 billion in the first ten months of 2025, reflects growing market confidence, with the current-account balance improving. The clearing of the FX backlog coupled with technological enhancements like the Nigerian Foreign Exchange Code and Bloomberg’s BMatch platform has enhanced market efficiency, minimizing arbitrage opportunities.

To further solidify these gains, Cardoso announced a revised FX manual to broaden market participation, uphold transparent pricing mechanisms, and emphasize robust documentation standards. The revised manual aims to streamline market operations, boost efficiency, and enhance liquidity to fortify market stability.

In addition to financial market stability, tangible progress in economic growth has been observed, with a notable 4.23% output increase in Q2, the strongest in four years. The Purchasing Managers’ Index (PMI) indicates growing confidence, with non-oil exports expanding, reflecting the benefits of a flexible exchange rate.

Nigeria’s economic diversification efforts are evident in reduced reliance on oil, with significant improvements in international ratings by Fitch, Moody’s, and S&P, attracting substantial investor interest. The recent $2.35 billion Eurobond issuance generated significant market confidence, indicative of the country’s positive economic trajectory.

Likewise, progress in the banking sector recapitalization drive and meticulous stress testing underscore the sector’s resilience, despite lingering risks related to concentration and cybersecurity. The MPC’s decision to maintain the Monetary Policy Rate at 27% reflects a strategic approach to balance economic expansion with market stability, ensuring sustained growth in the financial sector.