Six (6) Reasons Why the Naira Depreciated in March Despite $668m CBN Intervention

INTRO: The Nigerian naira experienced significant depreciation in March 2025, shedding 2.6% in the parallel market and 2.4% at the Nigerian Autonomous Foreign Exchange Market (NAFEM) window. Despite the Central Bank of Nigeria (CBN) intervening with a substantial $668 million, several factors contributed to the naira's decline. 

The reasons why the Naira depreciated in March despite $668m CBN intervention are:

1. Persistent Demand Pressure in the Foreign Exchange Market: The primary reason for the naira's depreciation is the ongoing demand pressure in the foreign exchange market. As highlighted by Afrinvest’s monthly report, demand for foreign currency, particularly the US dollar, remained high throughout March. This persistent demand outstripped supply, driving the naira’s value down despite the CBN’s intervention.

2. Increased Importation and Dollar Demand: Nigeria’s reliance on imports, especially for essential goods like fuel and machinery, has placed significant strain on the foreign exchange market. As businesses and individuals increased their dollar purchases to meet import needs, the demand for the naira to US dollar exchange rate was pushed further down, exacerbating the currency's depreciation.

3. Low Foreign Currency Reserves: The Central Bank of Nigeria has been facing challenges in maintaining sufficient foreign currency reserves to stabilize the naira. Despite the $668 million intervention, the reserves are still relatively low compared to the country’s foreign exchange requirements. This imbalance between demand and available reserves contributed to the naira’s continued slide.

4. Volatility in Global Oil Prices: Nigeria’s economy is heavily reliant on oil exports, which directly impacts the availability of foreign exchange in the market. The fluctuating global oil prices have further stressed the country’s foreign currency inflows. Although oil prices saw some recovery in early March, the volatility in the market kept the naira under pressure, as crude oil remains Nigeria’s major source of foreign currency.

5. Speculation and Market Sentiment: Speculators in both the formal and informal markets also played a role in driving the naira’s decline. With many anticipating further depreciation, market sentiment became negative, and demand for dollars surged. This speculative behavior further weakened the naira as buyers rushed to purchase dollars, hoping to hedge against future depreciation.

6. Limited Impact of CBN’s Intervention: Despite the significant $668 million intervention by the Central Bank of Nigeria, the effects were not enough to curb the naira’s depreciation in March. The intervention helped stabilize the market temporarily but failed to reverse the downward trend due to the overwhelming market forces and underlying structural challenges facing the Nigerian economy.