Naira gains 1.28% in official market in May amid oil price risks, currency volatility

The Nigerian naira appreciated by 1.28% against the U.S. dollar in the official foreign exchange market in May 2025, closing the month at N1,585.50/$1 on Friday, May 30, according to data from the Central Bank of Nigeria (CBN).

This marks a modest but positive recovery from the N1,606.00/$1 recorded on May 2, driven by improved FX inflows, relative market stability, and policy tightening by the CBN.

The naira had started the month slightly weaker, closing at N1,606/$1 on May 2, compared to N1,602/$1 on April 30.

Analysts credit the relative calm in the official market to a mix of tight monetary policy, improved forex supply, and a potentially stronger external balance sheet.

In contrast, the parallel market showed a 1.24% decline, with the naira weakening from N1,610/$1 at the beginning of May to N1,630/$1 by month’s end. The lowest rate recorded was N1,635/$1 on May 15, before slight recovery set in.

From May 21 to 29, the naira traded between N1,618/$1 and N1,625/$1, reflecting a fragile period of relative calm amid persistent demand pressures and limited FX supply in the informal market.

Adding a layer of concern to Nigeria’s foreign exchange outlook, OPEC+ announced on Saturday, May 31 that its member states would implement a 411,000 barrels per day production increase starting July 2025. This move is part of a phased rollback of the 2.2 million barrels/day voluntary cut agreed upon in December 2024.

 While OPEC+ cited “healthy market fundamentals and low inventories” as justification, analysts caution that if global demand fails to keep pace, oil prices could decline—posing a significant risk to Nigeria’s oil-dependent FX earnings.

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“If crude oil prices weaken amid higher production, Nigeria’s reserves and currency could face renewed pressure,” said a Lagos-based financial analyst.

Monetary Policy: CBN Holds Key Rates, But Tightening Bias Remains

At its 300th MPC meeting, the CBN voted to retain the Monetary Policy Rate (MPR) at 27.5%, in an effort to consolidate gains from its aggressive tightening stance.

However, speculation of a modest 25 basis point rate hike in coming months remains, especially as inflation—though easing—continues to pose structural challenges.

Economist and CEO of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, warned that excessively tight monetary measures could backfire.

“When you go and put CRR at 50%, it’s gone to the extreme,” Yusuf said. “There is no country in the world that has anything close to that.”

While May ended on a stronger note for the naira in the official market, risks remain. Global oil dynamics, domestic inflation, and supply-demand imbalances in the FX market will continue to test the sustainability of recent gains.

Market participants are watching closely to see whether the CBN’s policy stance, coupled with external developments, can maintain currency stability heading into Q3 2025.