Nigeria’s Foreign Exchange Reserves expected to hit $41 Billion by Year-End

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Nigeria’s foreign exchange reserves are projected to rise to $41 billion by the end of 2025, slightly higher than the previous year’s record, according to CardinalStone’s mid-year outlook report. The increase is attributed to the federal government’s plan to raise $3.2 billion in external borrowings in the second half of the year to meet fiscal priorities, alongside anticipated inflows from portfolio investors.

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“The proposed external borrowings, alongside other anticipated inflows, will likely boost the FX reserves to $41.00 billion by year-end, compared to $37.27 billion as of H1’25,” CardinalStone stated in its report.

A larger external reserve is expected to support the naira, with the local currency projected to maintain a bandwidth of N1,550.00 – N1,635.00/$ through the end of 2025. Despite shedding over $3.5 billion year-to-date due to external debt repayment and regular dollar sales to ensure liquidity and naira stability, the reserves are expected to benefit from improved FX management and tighter monetary policy.

Key Factors Influencing FX Reserves:

– External Borrowings: $3.2 billion planned borrowing in the second half of 2025

– Portfolio Inflows: Anticipated inflows from portfolio investors

– FX Management: Improved management and reduced intervention

– Global Economic Conditions: Sensitivity to global oil prices, portfolio flows, and fiscal consolidation pace

Monetary Policy and Interest Rates:

The Central Bank of Nigeria has maintained key benchmark interest rates at 27.5% for two consecutive meetings after an aggressive hike of 875 basis points. Analysts predict a potential 50-100 basis points increase before year-end, providing relief to businesses grappling with high borrowing rates.

Outlook and Risks:

While the outlook for FX reserves and the naira appears positive, it remains sensitive to global economic conditions, including oil prices and portfolio flows. Any shocks in these areas could pose downside risks to both reserves and currency stability.

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