Nigeria’s FX Inflows Fall to $672m Despite Naira Strengthening at Both Official and Black Markets
- Nigeria’s FX inflows fell to $672.30 million from $899.20 million, even though foreign portfolio investors remained the largest source of dollar supply
- The naira strengthened in both official and parallel markets, but analysts warn the convergence may be driven by short-term sentiment
- External reserves inched up to $43.5 billion, and while FPIs are expected to stay active, the naira’s stability still depends heavily on sustained CBN support and steady inflows
Nigeria’s foreign-exchange market saw a retreat in weekly dollar inflows even as the gap between the official and parallel-market exchange rates narrowed further, an unusual combination that has heightened traders’ concerns about rising speculative activity and the durability of recent gains in the naira.
A new report by Coronation Research shows that total inflows through the Nigerian Foreign Exchange Market (NFEM) slid to $672.30 million last week, down from $899.20 million recorded previously.
Source: UGC
Despite the downturn, foreign portfolio investors (FPIs) continued to dominate supply, providing 34.42% (roughly $231.40 million) of the market’s total inflows.
Contributions from non-bank corporates accounted for 25.70%, exporters 22.47%, individuals 7.56%, while the Central Bank of Nigeria (CBN) supplied 5.52%. The remaining 4.33% was made up of other minor channels.
Market reactions and risks of speculation
Even with softer inflows, the naira appreciated at both the official and parallel trading windows, supported in part by liquidity-boosting interventions.
At the Nigerian Autonomous Foreign Exchange Market (NAFEM), the currency firmed by 0.41%, closing at N1,442.43/$1, compared with N1,436.58/$1 a week earlier.
The parallel rate also strengthened by about 1.5% to N1,450/$1, compressing the market spread to 0.52% from nearly 2% previously.
Although such convergence often suggests improving confidence, analysts caution that the current alignment may reflect short-term sentiment rather than deeper structural progress.
Persistent speculative behaviour and the naira’s heightened sensitivity to fluctuations in dollar supply remain key risks.
A tighter spread also places additional responsibility on the CBN, which has been working to reduce arbitrage opportunities and discourage hoarding by enhancing supply at critical points of demand.
Coronation Research expects the naira to stay below N1,500/$1 in the near term, supported by liquidity and policy measures, though the currency could face renewed pressure if inflows weaken further.
Outlook Supported by Reserves and FPI Interest
Nigeria’s external reserves provided a bit of reassurance, inching up by 0.4% to $43.5 billion. The modest increase is linked to recent foreign-portfolio inflows into fixed-income assets, momentum that analysts believe may continue despite the possibility of a rate cut at the next Monetary Policy Committee (MPC) meeting.
FBNQuest Merchant Bank shares this view, highlighting that attractive interest-rate differentials could keep FPIs engaged in the short term.
Nonetheless, the sustainability of these inflows will depend heavily on broader macroeconomic indicators such as inflation trends, clarity in fiscal policy, and global investor sentiment.
Nigeria’s annual inflation eased sharply to 16.05% in October from 18.02% in September, though prices still rose on a month-to-month basis, accelerating to 0.93% from 0.72%.
Source: Getty Images
Naira’s Near-Term Path
For the week ahead, analysts expect the naira to remain within a similar trading band, with stability hinging on sustained CBN support and efforts to restrain speculative pressures.
Any significant surge in demand—whether from importers or opportunistic market participants—could quickly widen the market gap again, exposing the currency to a new round of volatility.
Source: Legit.ng
