FBNQuest raises FX stability concerns amid reserve pressure

By Chinwendu Obienyi

FBNQuest Merchant Bank has warned that Nigeria’s fragile foreign exchange (FX) stability may come under renewed pressure in the coming months, as sustained Central Bank of Nigeria (CBN) interventions continue to erode external reserves.

In its latest economic outlook, FBNQuest noted that the naira has traded within a relatively narrow band of NGN/USD1,530–1,630 through much of 2025, closing June at NGN/USD1,532. This stability, it said, has been supported by consistent CBN activity in the FX market and a modest recovery in foreign portfolio inflows.

However, the report flagged growing vulnerabilities, citing an uneven flow of foreign investment and rising external risks as potential threats to naira stability. “The naira’s current stability reflects policy efforts and temporary inflows, not necessarily improved fundamentals,” the report stated.

According to FBNQuest, the central bank’s interventions, while successful in anchoring the naira in the short term, are leading to a gradual depletion of Nigeria’s foreign reserves, raising questions about the long-term sustainability of the current FX regime.

“The cost of maintaining the currency peg is mounting,” the bank noted, adding that dwindling reserves could limit the CBN’s ability to continue defending the naira at current levels.

Despite these concerns, the bank maintained that the naira is likely to remain relatively stable through the rest of 2025, barring a major external shock. It forecasts the currency to end the year at NGN/USD1,662, a moderate depreciation from current levels but within a manageable range, assuming no sharp reversal in capital flows or global market sentiment.

The report also cautioned that investor confidence remains sensitive to global developments, including U.S. interest rates, oil price fluctuations, and geopolitical tensions. A worsening in any of these variables, FBNQuest said, could amplify pressure on the naira and further strain Nigeria’s reserve position.

While Nigeria continues to attract capital into high-yield government securities and benefit from a more flexible FX framework, FBNQuest stressed that rebuilding reserves and deepening structural reforms will be essential to ensure lasting FX stability.

As policymakers weigh the trade-offs, the bank’s message is clear: current naira stability is real but fragile, and without a more durable external buffer, the risks remain tilted to the downside.