The naira is projected to trade between stable and bullish over the next six months, with a target corridor of ₦1,250/$ to ₦1,350/$, backed by interventions from the Central Bank of Nigeria and strong market confidence.

The country’s reserve buffers could come under pressure if international crude prices fall, if import demand rises suddenly, or if domestic inflation picks up again.

The bullish floor, with support at ₦1,250/$ to ₦1,300/$, is the effective lower bound of the target corridor.

At this lower bound, market players are likely to hold less naira in anticipation of CBN intervention, or the rate becomes important for portfolio rebalancing.

The bearish ceiling, with resistance at ₦1,350/$ to ₦1,400/$, is the effective upper limit of the corridor, and dollar supply dominates once the rate moves past this level.

A move beyond the ceiling can be reversed by the receipt of export proceeds, foreign portfolio inflows or a CBN liquidity injection, which would pull the rate back into the target corridor.

Regular CBN intervention creates large limit-sell orders for the US dollar on the Nigerian Foreign Exchange Market (NFEM).

This step helps to meet excess dollar demand and convert it into buy-side liquidity for the naira.

Regular interbank turnover has also developed into a form of convergence that reduces intraday price swings, creating an environment in which the currency can only consolidate rather than blow out.

Oil revenue is the mainstay of Nigeria’s external reserves.

If crude prices take a nosedive, the external account will tighten and the CBN may not have enough ammunition to defend the support floor.

The CBN has reported gross external reserves of $55bn and net foreign exchange reserves of $46 billion.

The Monetary Policy Committee (MPC) also cut the Monetary Policy Rate (MPR) by 350bps, from 26.5 per cent to 23.0 per cent.

Interest rate cuts usually put pressure on a domestic currency because they narrow the yield differential. Even so, the short-term view for the naira (NGN) remains cautiously bullish to stable, in the ₦1,320/$ to ₦1,380/$ range.

Rebuilding net reserves signals to the market that the CBN can sustain a currency defence, clear existing foreign exchange obligations and absorb certain shocks.

A strong gross reserve position assures foreign investors and domestic importers that foreign exchange will be available on demand.

This means less panic buying, less hedging through illicit channels and less speculation in the parallel market.

However, seasonal surges in import demand create sudden clusters of heavy dollar-buying orders.

If demand overwhelms the available supply in the market, price action will quickly breach the ₦1,350/$ resistance level.

On policy transmission and real interest rates, the reduction of the MPR to 23.0 per cent was an operational-level policy adjustment meant to ease borrowing costs for the private sector and debt-servicing commitments.

On the real yield differential, local yield levels remain compelling relative to inflation even at 23.0 per cent.

Diaspora remittances, improved crude oil export receipts and net capital inflows also continue to boost Nigeria’s foreign exchange supply.

Naira bond yields remain marginally attractive despite the CBN’s deep rate cut.

They offer a competitive proposition to foreign investors, supported by foreign exchange market reforms.

Local currency assets provide a net real yield of more than 3 per cent in the treasury market, with local yields at 18 per cent and headline inflation easing to about 15 per cent.

This makes for an attractive investment proposition for local investors and foreign portfolio investors (FPIs) seeking inflation-adjusted yields.

Diaspora remittances consistently provide a robust and sustained inflow of foreign exchange, which underpins overall liquidity and stability.

Rising volumes and higher current account surpluses continue to underpin gross external reserves and export earnings.