Nigeria’s currency recorded a significant rebound on Monday, with the naira trading below the ₦1,500 per dollar mark for the first time in over six months.
FX inflows Official market data showed the domestic currency appreciating to ₦1,497.46/$, from the previous close of ₦1,501.49/$, signaling renewed confidence in the foreign exchange market.
The development comes after several weeks of volatility in which the naira hovered precariously around the ₦1,500/$ threshold, raising concerns among market watchers.
The breakthrough was largely attributed to stronger FX inflows and an uptick in the country’s external reserves, both of which provided liquidity support to the market.
According to figures released by the Central Bank of Nigeria (CBN), the naira’s 0.27 per cent gain at the official window reflected growing stability.
In the parallel market, the currency also appreciated by 0.33 per cent, closing at ₦1,535/$ as tracked by CardinalStone Research.
Week-on-week, the naira gained 0.98 per cent in the official market to settle at ₦1,501.50/$, while the parallel market recorded a similar upward trend.
The narrowing gap between both markets has been welcomed by analysts, who argue that consistent FX inflows are helping reduce arbitrage opportunities and speculative pressures.
The Coronation Weekly Update revealed that foreign exchange inflows into Nigeria reached $550.90 million last week, slightly lower than the $567.20 million recorded in the preceding week.
Despite the marginal dip, analysts emphasized that the volume of FX inflows remains healthy and continues to underpin market stability.
Foreign Portfolio Investments (FPIs) contributed the largest share of FX inflows, accounting for $303.8 million or 55.15 per cent.
Exporters followed with 17.61 per cent, while non-bank corporates added 17.57 per cent.
Other contributions included corporates at 4.32 per cent, Foreign Direct Investments at 3.39 per cent, the CBN at 2.36 per cent, and individuals at 0.60 per cent.
This composition highlights Nigeria’s current dependence on portfolio flows, which though beneficial in the short term, pose risks of volatility if investors exit suddenly.
Experts warn that while FX inflows from FPIs help support the naira, more durable sources such as foreign direct investments and export proceeds must be cultivated.
Financial experts agree that the naira’s appreciation has been largely fueled by robust FX inflows and healthy reserves.
AIICO Capital noted that dollar liquidity supplied by FPIs, oil exporters, and offshore flows ensured an “offered market tone” throughout last week.
Similarly, Cowry Asset Management stressed that consistent FX inflows, together with CBN interventions and a stronger reserves position, were key drivers of the recovery.
“We expect the naira to maintain its current appreciation trend, provided FX inflows remain steady and speculative activities are contained,” the firm said.
However, the analysts cautioned that excessive speculation or sudden withdrawal of portfolio funds could reverse the gains.
Nigeria’s gross external reserves rose to $41.69 billion as of Friday, continuing a trend of steady daily accretions.
Rising reserves not only provide the CBN with more ammunition to defend the naira but also help calm investor concerns about Nigeria’s ability to meet external obligations.
According to market watchers, the reserves build-up combined with FX inflows is creating a more sustainable base for currency stability.
The CBN’s ongoing policy interventions, including managed float operations and tighter monetary controls, are also contributing to improved liquidity conditions.
While the naira’s return below ₦1,500/$ has boosted confidence, many experts argue that lasting stability will depend on broader structural reforms.
These include diversifying sources of FX inflows beyond portfolio investments, stimulating non-oil exports, and attracting higher levels of foreign direct investment.
The Coronation report noted that although FX inflows and reserves currently support stability, pressures could re-emerge toward the year’s end due to increased dollar demand for festive season imports.
AIICO Capital echoed this caution, warning that speculative demand might reappear if investors perceive a shift in policy direction or if reserves growth slows.
In the short term, the naira is expected to trade within a relatively narrow band, supported by ongoing FX inflows and higher reserves.
Analysts believe that as long as dollar liquidity remains ample, speculative pressures will be subdued.
For Nigeria, however, the bigger challenge lies in sustaining inflows through structural adjustments.
Policymakers are being urged to prioritize diversification, implement reforms that attract long-term investors, and reduce overreliance on short-term capital.
For now, the naira’s climb to ₦1,497/$ is being hailed as a positive development, signaling renewed market confidence and affirming the importance of FX inflows in stabilizing Africa’s largest economy.
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