Investors seeking to lock in high yields on Nigerian debt ahead of an expected interest-rate cut by the central bank are fueling gains in the naira, which is at its strongest weekly level against the dollar since November 2024 in the official currency market.
In the informal parallel market, where those avoiding official scrutiny trade the currency, however, the naira is trading much weaker amid confusion over a new tax law that came into effect this month.
The naira appreciated 2.6% this week to 1,384 a dollar as of 10.55am in Lagos, its biggest weekly gains in a year, according to data compiled by Bloomberg. Investors “locking in relatively elevated yields” are driving the gains, said Tajudeen Ibrahim, head of research at Chapel Hill Denham in Lagos.
While inflation has slowed from a 28-year high in November 2024, the central bank stayed cautious in cutting rates in a bid to keep investors, the main suppliers of dollars in the West African nation, locked into its high-yield bills. The central bank cut its benchmark rate only once in 2025 and left it unchanged at 27% at its November meeting.
Last week, the Abuja-based regulator sold 491 billion naira of seven-month securities at 19.38%, similar to the rate at the previous sale of 2.5 trillion naira.
Inflation slowed to 15.2% in December, compared with 17.3% in the previous month, under a revised methodology for calculating the consumer price index, according to the nation’s statistics agency. A stronger currency helps curb price rises on imported items, though the widening gap between the official and parallel exchange rates could put upward pressure on inflation.
The naira traded at 1,475 per dollar at the parallel market on Friday, said Abubakar Muhammed, managing director of Abbufx Bureau de Change, which tracks the street rates in the commercial hub. The differential pricing widens the official and parallel market rates to 6.2% from 2.8% at the end of December and 1.2% at the beginning of last month.
Muhammed said confusion about the new tax law is driving demand for dollars in the informal market. “Individuals are converting naira to dollars to secure their assets or avert scrutiny of tax agents,” Muhammed said. “We may see dollar demand start to wane and the rate appreciate gradually, when there’s more clarity around the tax.”
Read: Nigeria Plans to Review Capital Gains Tax That Tanked Equities
The new law has given wider powers to tax authorities, and reinforced a rule compelling banks to report transactions in personal and business accounts above certain thresholds to the Nigerian Revenue Service monthly and quarterly. While the measure is aimed at broadening the tax base, it has also created apprehension about tax authorities monitoring personal accounts.
“People are afraid that tax authorities could actually lock their account,” said Bismarck Rewane, CEO at consultancy Financial Derivatives Co. in Lagos. “In the interim what they are doing, they are just buying dollars and keeping it aside.”
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