Rate Cuts Could Push Naira to 1,700 Per Dollar Amid $9bn Carry Trade Unwind

Nigeria’s naira could come under modest pressure next year after stabilizing in 2025 as the nation’s central bank cuts rates gradually and portfolio flows reverse, Citigroup Inc. said.

The currency of Africa’s top oil producer may weaken to between 1,650 per dollar and 1,700 per dollar by mid next year, David Cowan, Citi’s African economist, ex-South Africa said in a note to clients on Wednesday.

Depreciation of the naira might initially start with outflows of portfolio investments, Cowan said. Citi traders estimate this segment of inflows or Carry Trade into the Nigerian market are currently worth about $9 billion, he said.

A Carry Trade is a financial strategy where an investor borrows money in a currency or at an interest rate that is low, then invests the borrowed funds in assets or currencies that offer a higher return or interest rate.

The goal is to profit from the difference between the borrowing cost and the investment return, known as the interest rate differential or the “carry.”

The Central Bank of Nigeria trimmed its key interest rate by 50 basis points to 27% on Tuesday, the first time in five years, signaling the start of an easing cycle after inflation slowed to almost a one-year low of 20.1% in August.

“If, as we expect, inflation starts to ease next year and the CBN starts to more aggressively ease its tight monetary policy stance, we would expect some modest pressure on the naira as 2026 progresses,” Cowan said.

“Assuming we do have some oil price weakness in 2026, all these economic trends would point to some modest naira depreciation from current levels, as we head into the first half of next year,” he said.

The naira has appreciated by 3.6% this year, helped partly by stronger oil export earnings, dollar sales by the central bank and portfolio inflows into the bonds market.