Week Ending: Friday, October 17, 2025
The Naira experienced modest depreciation across all major currencies during the week, with the USD/NGN rate weakening 0.5% to ₦1,469.4. The GBP and EUR posted sharper declines of 1.3% and 0.9% respectively.
This weakness was driven by elevated corporate FX demand ahead of month-end obligations, weak oil prices, and mixed foreign portfolio flows. Despite targeted CBN interventions, demand pressures dominated supply, widening the official-to-parallel market spread.
Official Market (NFEM)
Higher numbers indicate naira depreciation
Parallel/BDC Market
- USD/NGN: Mid-₦1,480s to ~₦1,500 range throughout the week
- Official-to-Parallel Premium: Low tens of naira (modest spread)
- Market Character: Street quotes notably weaker than official windows
Key Economic Indicators
Inflation Progress
- Headline CPI: 18.02% year-over-year (September 2025)
- Trend: Sixth consecutive month of moderation
- Implication: Reduced inflation-risk premium on naira; provides CBN policy flexibility
- Context: Down from 20.12% in August, marking significant disinflation progress
Oil Market Weakness
- Brent Crude: ~$60-62/barrel (mid-October)
- Trend: Modest drag on FX inflows vs. earlier 2025 highs
- Global Factors: US-China trade tensions adding downside pressure
- Impact: Limited dollar earnings from crude exports
CBN Policy Activity
- Intervention Style: Targeted interventions in NFEM spot allocations
- Bank Liquidity: Bank-to-bank liquidity measures deployed
- FX Code Emphasis: Continued focus on market compliance
- Effectiveness: Visible but insufficient to eliminate intraday volatility
Market Dynamics
Demand-Side Pressures (Dominant This Week)
Corporate & Import Demand:
- Importers and corporates accelerated FX purchases ahead of end-month obligations
- Heightened activity as companies prepared for October month-end settlements
- Sustained baseline demand from trade financing
Portfolio Flow Dynamics:
- Mixed foreign portfolio flows throughout the week
- Domestic bond market saw profit-taking episodes
- Episodic dollar demand created from portfolio rebalancing
- Foreign investor positioning cautious amid global uncertainty
Supply-Side Constraints
Limited Support:
- Remittance flows remained constructive but moderate
- Inflows insufficient to offset elevated corporate/import demand
- Oil export receipts constrained by lower crude prices
- No large-scale CBN intervention to flood market with liquidity
Net Result: Demand pressures overwhelmed available supply, driving the modest but consistent depreciation across all currency pairs.
Week-in-Review: What Drove the Market
1. Month-End Positioning
The approaching October month-end triggered anticipatory FX demand from corporates needing to settle supplier invoices, repatriate dividends, and meet external obligations. This seasonal pattern added predictable pressure.
2. Oil Price Headwind
Brent’s decline to the $60-62 range reduced Nigeria’s oil export earnings at a time when FX demand was elevated. This supply-demand imbalance contributed to naira weakness.
3. Inflation Silver Lining
The continued disinflation to 18.02% represents a positive development, potentially allowing the CBN more flexibility in future policy decisions. However, this week it wasn’t enough to counter immediate demand pressures.
4. CBN Intervention Limitations
While the CBN conducted targeted interventions, these were calibrated to maintain orderly markets rather than defend a specific rate level. The bank appeared comfortable allowing modest depreciation within bounds.
Outlook: Week of October 20-24, 2025
Base Case: Mild Depreciation Pressure Continues
Expected Scenario: Naira likely to face continued modest downward pressure into late October
Key Drivers for Next Week
1. Oil Price Trajectory
- Current Brent levels ($60-62) limit crude receipts
- Further weakness would compound FX supply constraints
- Any recovery could ease pressure
2. Corporate FX Demand
- Month-end settlement period will sustain elevated demand
- Import financing needs remain strong
- Service payment obligations add to baseline demand
Rate Projections
Without Enhanced CBN Intervention:
- Official NFEM: ₦1,470 – ₦1,490
- Parallel market: ₦1,490 – ₦1,540
- Street premium may widen by additional ₦10-40
With CBN Support:
- Official NFEM: ₦1,465 – ₦1,475
- More compressed spread to parallel market
- Reduced intraday volatility
Market Implications
For Corporate Treasurers
- Action Items: Complete month-end FX purchases early to avoid further depreciation
- Planning: Budget for ₦1,470-1,490 range for USD needs
- Risk Management: Consider forward cover if available for Q4 obligations
For Importers
- Timing: Access official windows promptly as spreads may widen
- Pricing: Factor in potential additional ₦10-30 depreciation for late-month shipments
- Alternatives: Diversify across official and parallel channels
For Investors
- Fixed Income: Domestic bond profit-taking creating FX demand—watch for value
- Currency View: Near-term bias toward modest naira weakness
- Hedging: Consider FX hedges for naira-denominated positions if available
For Policy Makers
- Observation: Market functioning but under pressure
- Tools Available: Enhanced CBN sales could stabilize if desired
- Consideration: Balance between market-determined rates and stability objectives
Summary
The week ending October 17th marked a shift from the previous week’s stability, with the naira depreciating modestly across all major currency pairs. Demand pressures—particularly from corporate month-end positioning and import needs—overwhelmed available supply constrained by weak oil prices and moderate remittance flows.
The continued disinflation to 18.02% provides a positive macro backdrop, but wasn’t sufficient to counter immediate market dynamics.
Looking ahead, expect mild depreciation pressure to persist into late October unless the CBN significantly increases FX allocations. The key variables to watch are oil price movements, CBN intervention intensity, and the pace of corporate FX demand as month-end approaches.
The market remains orderly but under pressure, with the official-to-parallel spread indicating manageable but present supply constraints.
This report provides institutional-grade analysis for investment professionals, corporate treasurers, and policy makers tracking Nigeria’s foreign exchange market dynamics.
