Forex Inflow Declines As Naira Dips To N1,556/$

Nigeria’s foreign exchange inflows declined by 12.9 per cent month-on-month (m/m) to $4.12 billion in February, down from $4.74 billion in January, according to data from FMDQ.

This drop was driven by a broad-based decline in both foreign and local inflows, further exacerbating pressure on the naira, which depreciated to N1,556.63 per dollar at the Nigerian Foreign Exchange Market (NFEM) last week.

Foreign inflows, which accounted for 50.1 per cent of total transactions, fell by 10.5 per cent m/m to $2.07 billion, largely due to declines in Foreign Portfolio Investment (FPI), which was down by 12.5 per cent, and Foreign Direct Investment (FDI) which declined by 12.3 per cent, despite a 172.6 per cent surge in inflows from other corporate sources.

Similarly, local inflows declined by 15.1 per cent m/m to $2.06 billion, as inflows from individuals (-62.5 per cent), the Central Bank of Nigeria (-36.3 per cent), and exporters/importers (-22.5 per cent ) all contracted.

Despite the downturn, analysts expect FX inflows to remain resilient in the short term, buoyed by improved market confidence. However, analysts at Cordros Research note that the recent moderation in yields, following a rebased inflation figure of 24.82 per cent  in January 2025, could weaken carry trade opportunities, restraining foreign investment in Nigeria’s foreign exchange market and ultimately limiting liquidity.

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Meanwhile, foreign investor participation in the Nigerian stock market increased to its highest level since July 2024, rising 7.1 per cent  m/m to N71.51 billion in January. The uptick was attributed to improved confidence in Nigeria’s forex market and easing fixed-income yields. Looking ahead, the analysts note that foreign participation could increase if the naira remains relatively stable.

At the end of last week’s trading, the naira’s value had depreciated by 3.6 percent to N1,556.63 to the dollar despite the CBN’s intervention, which saw the sale of approximately $59 million to authorised dealers. Foreign exchange reserves also declined by $115.18 million to $38.34 billion as of March 5, 2025, marking the eighth consecutive week of depletion.

In the forwards market, the naira weakened across all contract tenors. The 1-month contract at  N1,549.59/$ had weakened by 0.7 per cent, while the 3-month, 6-month and 1-year contracts had declined by 0.7, 0.6 and 0.3 per cent to N1,618.82/$, N1,721.87/$ and N1,905.92/$ respectively.

Despite ongoing pressure, analysts believe naira volatility will remain contained due to strong liquidity from improved autonomous inflows and the CBN’s continued interventions. However, sustained excess demand over supply remains a key risk to exchange rate stability.