Despite Optimism, Forex Inflow Declines By 20.9% In July

Although analysts remained optimistic that liquidity in the foreign exchange market will be robust, total inflows into the Nigerian Foreign Exchange Market (NFEM) declined for the second consecutive month in July 2025.

Hence, it fell by 20.9 per cent month-on-month after a 28.1 decline in June. This is as the 30 days moving average of the country’s foreign reserves increased for the fourth consecutive week, growing by 1.53 per cent or $593.75 million week-on-week to $39.36 billion as of July 30, 2025, according to data by the Central Bank of Nigeria (CBN).

The naira had also regained value in the course of last week appreciating slightly by 0.06 per cent week-on-week to close at N1,533.74 to the dollar, supported by improved forex liquidity and continued CBN intervention,  as rising demand from holiday-bound travellers pushed down its value at the parallel market by 0.13 per cent.

Data from FMDQ showed that inflow into the NEFM slowed further to $3.83 billion, down from $4.84 billion recorded in June. This development was largely driven by significant reductions in foreign and domestic currency contributions.

Foreign sources, which accounted for 45.8 per cent of total inflows in July, saw a steep decline of 35.6 per cent to $1.75 billion, compared to $2.73 billion in the preceding month. This decline was particularly pronounced in the Foreign Direct Investment (FDI) segment, which plunged by 79.8 per cent. Other major declines were recorded in corporate inflows which was down by 60.1 per cent and Foreign Portfolio Investments (FPIs), which dipped 34.8 per cent month-on-month.

Meanwhile, inflows from domestic sources, which made up 54.2 per cent of the total, fell marginally by 1.9 per cent to $2.07 billion in July, as against $2.11 billion recorded in June. The modest decline was largely attributed to a 30.1 per cent drop in Exporters/Importers’ contributions.

However, this was partially offset by increased inflows from individuals which rose by 117.5 per cent, the CBN increased inflow by 77.8 per cent, and non-bank corporates with 5.4 per cent increased inflow.

Despite the decline, analysts remain optimistic about the near-term outlook for forex inflows, expecting total inflows to surpass the 2024 full-year average of $2.51 billion.

Analysts at Cordros Research attributed this to rising market confidence and “still-attractive naira yields, particularly for foreign portfolio investors. “We maintain our optimism on the naira as forex liquidity is poised to remain robust. Elevated yields in the OMO market, coupled with a weaker dollar, will likely sustain inflows from FPIs. Moreover, reduced incentives for naira speculation and stronger confidence in the forex framework are supporting local source inflows.”

Also, analysts at Cowry Asset Management said, they expected the naira to remain stable across both official and parallel market ends as it warned of persistent pressure in the parallel market, even as the official window remains supported.

“We anticipate the naira to trade within a relatively stable band across both the official and parallel windows, aided by ongoing CBN interventions and healthy reserve buffers. Nonetheless, seasonal dollar demand, especially from outbound travellers, may continue to exert some pressure on the unofficial market.”

In the forwards market, the value of the naira appreciated across all tenor contracts. The 1-month contract appreciated by 0.6 per cent to N1,567.61/$; the 3-month appreciated 1.2 per cent to N1,627.53/$; the 6-month gained 2.5 per cent to N1,714.93/$; while the 1-year contract rose 4.4 per cent to N1,884.07/$.