Policy Reforms Anchor Naira Strength as Eurobond Gains Narrow Risk Premium

The Nigerian currency is seeing sustained foreign exchange stability, as recent policy reforms such as the Electronic Foreign Exchange Matching System and B-Match trading system have supported Naira appreciation.

Meanwhile the nation’s sovereign risk spread has fallen to the lowest level since January 2020, erasing the premium accumulated during the pandemic and subsequent strain on its economy.

Furthermore, improved oil production, enhanced fiscal-monetary coordination, and increased foreign capital inflows, including Foreign Portfolio Investments (FPIs) and Diaspora remittances have reinforced the Naira.

The naira which suffered prolonged volatility after President Bola Tinubu eased its peg against the dollar in 2023, has seen stability since December.

The currency has held in a narrow range between N1,470 and N1,550 per dollar since early December.

Yields on Nigeria’s $1.5 billion eurobond due in 2034 have declined to 9.63%, the lowest since its early December launch.

At its 299th meeting held on February 19–20th, 2025, the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) opted to maintain all policy parameters for the first time in three years, with the Monetary Policy Rate (MPR) unchanged at 27.50%, the Cash Reserve Ratio (CRR) at 50.00% for Deposit Money Banks and 16.00% for Merchant Banks, and the Liquidity Ratio at 30.00%.

“The decision to keep rates steady is expected to provide near-term relief to the real sector,” analysts at Meristem Securities said in a note to investors.

“We expect near-term inflationary pressures to remain moderate, supported by Naira stability, steady PMS prices, and sustained food supply.”

Nigeria Eurobonds gained and the extra yield investors demand to hold Nigerian dollar bonds as opposed to comparable US Treasuries narrowed on strong investor demand which drove average Eurobond yields down to 8.93% from 9.03% in the previous week.

Buying interest was broad-based across all maturities, reflecting sustained appetite for Nigerian sovereign bonds due to positive reaction to reforms.

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