Report warns FX pressures, rising demand and market divergence could drive modest depreciation despite stronger reserves and investor confidence…
Recent gains recorded by the Nigerian currency may not be sustained through the year, with the naira projected to weaken moderately before the end of 2026, according to a new report by BMI, a unit of Fitch Solutions.
In its latest publication titled “Sub-Saharan Africa FX Roundup: 2026 Will Be A Story Of Stability For Some And Strength For Others,” BMI stated that although the naira has strengthened in the early months of 2026, underlying macroeconomic pressures point to gradual depreciation over the course of the year.
The local currency ended the week at N1,358 to the dollar, extending its recent recovery. So far in 2026, the naira has appreciated by about 5.8 percent on the official market, building on a 7.0 percent gain recorded in 2025.
Despite this rebound, BMI said the rally may prove temporary and expects the currency to weaken moderately from current levels.
“The Nigerian naira will weaken modestly through 2026, sliding from NGN1,354/USD on February 11 to NGN1,550/USD by year-end. Although the currency has gained 5.8 percent on the official market in early 2026, building on last year’s 7.0 percent appreciation, we view this strength as temporary,” the report stated.
The firm explained that easing inflation projected to fall from an average of 23.3 percent in 2025 to about 14.5 percent in 2026 could strengthen domestic demand and increase the country’s foreign exchange requirements. It also pointed to the widening gap between official and parallel market exchange rates as a signal of growing FX pressure.
“The recent divergence between official and parallel rates, with the naira trading about 6–7 percent weaker on the black market, suggests the official rate may be slightly overvalued,” BMI noted.
However, the report emphasised that any depreciation in 2026 is expected to be moderate compared to previous years. It cited Nigeria’s relatively high interest rate differential and improving investor sentiment toward emerging and frontier markets as factors likely to sustain portfolio inflows and support FX supply.
Background trends show the naira ended 2025 on a stronger note, closing at N1,429 to the dollar on December 31, representing a 7.4 percent appreciation from N1,535 recorded at the end of 2024. The performance marked the currency’s first annual gain since 2012, when it strengthened marginally from N158.99 in 2011 to N157.29.
Between 2013 and 2024, the naira recorded consistent annual depreciation, making the 2025 rebound a notable turnaround. The currency had earlier fallen to its weakest level in April 2025, closing at N1,602 to the dollar, before beginning a gradual recovery in May and strengthening steadily toward year-end.
By December 2025, the naira closed at N1,429 to the dollar, improving from N1,450.01 at the start of the month and outperforming its January 2025 opening rate of N1,538.50.
Looking beyond Nigeria, BMI said major Sub-Saharan African currencies are likely to show greater stability in 2026, supported by relatively favourable global financial conditions.
“SSA currencies have performed well year-to-date, with the Zambian kwacha up 16.0 percent against the US dollar, the Nigerian naira up 5.9 percent, and the South African rand gaining 4.1 percent. While the recent rally is unlikely to retain full momentum throughout the year, we do not expect major sell-offs,” the report added.
The firm said global financial conditions remain broadly supportive, projecting the US Dollar Index (DXY) to trade within the 95–100 range, signalling relatively muted demand for safe-haven US assets. It added that appetite for higher-yielding emerging and frontier market assets remains strong, reflected in gains recorded by the JP Morgan EM FX Risk Appetite Index in early 2026. Continued reform efforts, improving fiscal conditions and ongoing engagement with the IMF were also highlighted as factors supporting investor confidence across the region.
Meanwhile, Nigeria’s external reserves have climbed above 47 billion dollars for the first time in about eight years, strengthening confidence in the country’s external position. Data showed gross reserves rose to 47.025 billion dollars, the highest level since August 2018, with the upward trend beginning in late 2025 and continuing into early 2026.
BMI noted that Nigeria’s reserves reached about 45.5 billion dollars in December 2025, equivalent to roughly nine months of import cover. The improvement was partly attributed to structurally lower fuel imports, supported by increased domestic refining capacity, including output from the Dangote Refinery.
